Redemption Agreement Template for Canada

A Redemption Agreement sets out the terms for a corporation to buy back shares from its shareholders. Most Canadian companies use these agreements to maintain control over ownership, manage departing shareholders, or handle specific trigger events like retirement or death. The agreement specifies the price, timing, and method of share repurchases.

Under Canadian corporate law, redemption rights must align with the company's articles of incorporation and provincial securities regulations. These agreements often work alongside shareholder agreements and can include critical details like valuation methods, payment terms, and any conditions that must be met before shares can be redeemed. They're especially common in private companies where maintaining control over share ownership is crucial.

Private companies in Canada need a Redemption Agreement when planning for shareholder exits or transitions. Common triggers include retirement, death, disability, or when a shareholder wants to sell their stake. The agreement becomes essential for family businesses managing succession, professional corporations handling partner departures, or startups preparing for ownership changes.

These agreements protect both the company and shareholders by establishing clear rules before challenging situations arise. They're particularly valuable when companies want to prevent shares from being transferred to outsiders, maintain specific ownership structures, or ensure smooth transitions during critical events. Having this framework in place helps avoid disputes and maintains business continuity.

• Mandatory Redemption: Requires the company to buy back shares when specific events occur, like retirement or death of a shareholder
• Optional Redemption: Gives the company the right, but not obligation, to repurchase shares under defined circumstances
• Put-Right Redemption: Allows shareholders to force the company to buy their shares under specific conditions
• Staged Redemption: Structures share buybacks over time with scheduled payments and milestones
• Conditional Redemption: Links share repurchases to specific performance metrics, regulatory approvals, or business events

• Private Companies: The primary entities using Redemption Agreements to control share ownership and manage transitions
• Shareholders: Individuals or entities whose shares may be subject to redemption under specific conditions
• Corporate Lawyers: Draft and review agreements to ensure compliance with Canadian securities laws and corporate regulations
• Board of Directors: Approve and oversee the implementation of redemption terms and conditions
• Financial Advisors: Help determine fair market value and structure payment terms for share redemptions
• Estate Planners: Incorporate redemption provisions into succession planning strategies for business owners

• Company Details: Gather articles of incorporation, shareholder agreements, and current share structure
• Trigger Events: Define specific circumstances that will activate share redemption rights
• Valuation Method: Determine how share price will be calculated when redemption occurs
• Payment Terms: Establish timeline, installment options, and funding sources for share purchases
• Stakeholder Input: Consult key shareholders and board members on proposed terms
• Legal Requirements: Review provincial securities regulations and corporate law restrictions
• Documentation: Prepare corporate resolutions authorizing the redemption agreement

• Party Information: Full legal names and details of the corporation and shareholders involved
• Share Details: Class, number, and characteristics of shares subject to redemption
• Trigger Events: Clear definition of circumstances activating redemption rights
• Valuation Formula: Specific method for determining share price upon redemption
• Payment Terms: Timing, method, and conditions of payment for redeemed shares
• Notice Requirements: Procedures for communicating redemption events and decisions
• Governing Law: Explicit reference to applicable Canadian provincial laws
• Signature Block: Proper execution spaces for all required parties

A Redemption Agreement differs significantly from a Business Purchase Agreement, though both involve transferring ownership interests. Let's explore their key distinctions:

• Transaction Structure: Redemption Agreements involve the company buying back its own shares from shareholders, while Business Purchase Agreements cover the sale of business assets or shares between independent parties
• Regulatory Framework: Redemption Agreements must comply with corporate law restrictions on share capital, while Business Purchase Agreements focus on asset transfer and commercial sale regulations
• Trigger Mechanisms: Redemption Agreements typically activate on specific events (death, retirement, exit), whereas Business Purchase Agreements execute on agreed closing dates
• Payment Sources: Redemptions use corporate funds and must meet solvency tests under Canadian law, while business purchases often involve external financing or buyer's funds