contract-law limited-liability-company
Employee Stock Ownership as long as Employee Stays in the Company, What Kind of Nonsense is This?
<p>Recently a friend of mine has received a stock buy offer from its company. The company offered to sell a specific amount of the company shares with a nice discount rate, because he was in a critical and irreplacable position. Everything is fine up to this point.</p>

<p>However, there is a ridiculous clause in the agreement: without any specific lime limit, if the employee quits job or the company fires him (event after 10 years), he will be required to, enforced to sell its shares back to company!</p>

<p>Is such a clause legal or against the priciple of private ownership? or can this be called stock buy offer at all? I guess you did not see such a nonsense before. Thanks.</p>

<p>This is neither unusual nor illegal, assuming that the buyback price is specified in the agreement. If your friend does not wish to take advantage of the "nice discount" he can decline the deal, and decide for himself whether he wishes to buy shares without restriction, at the market rate.</p>

<p>(It would be interesting to know what happens if he sells his shares and then leaves the company. I am fairly sure the agreement will cover this, but requiring an ex-employee to buy shares and then give them to the company could be considered unconscionable. That might be worth asking a lawyer about).</p>

<h2>Such agreements are extremely common</h2>

<p>In fact, companies can issue redeemable shares to the market which can be bought back at any time from the current owner. Such shares normally trade at a discount to the company’s ordinary shares.</p>

<p>Of course, companies can also buy back their ordinary shares on a voluntary or compulsory basis anyway.</p>

<p>Unpacking your friend’s offer: he is buying the shares and selling the company a perpetual option to buy them back all wrapped up in one contract. That’s all normal stocks and securities stuff and part of the reason why he’s getting them at a discount.</p>
