A restricted stock purchase agreement (RSPA) is a legal document that outlines the terms and conditions of a stock purchase between two parties. It is a commonly used tool in private companies, where stocks are not publicly traded.
An RSPA gives an individual or group the ability to purchase stock in a company, subject to certain restrictions. These restrictions typically include a holding period, which means that the purchaser cannot sell the stock for a certain period of time. The holding period is usually one year from the date of purchase.
During the holding period, the purchaser`s ability to transfer the shares is also restricted. This means that the shares cannot be sold, gifted, or otherwise transferred to another party without the company`s approval.
The purpose of an RSPA is to provide a mechanism for a private company to raise capital while maintaining control over who owns its stock. By limiting the transferability of the shares, the company can ensure that the shares remain with investors who are committed to the long-term success of the company.
Another key aspect of an RSPA is the price at which the shares are sold. Unlike publicly traded stocks, which have a market price, the price of privately held stock is negotiated between the company and the purchaser. This can make it difficult for investors to determine the true value of the shares, and it is important for both parties to conduct due diligence before entering into an RSPA.
In addition to the holding period and transfer restrictions, an RSPA may also include other provisions, such as a right of first refusal. This provision gives the company the right to buy back the shares from the investor at a predetermined price before they can be sold to another party.
Overall, an RSPA is a useful tool for private companies looking to raise capital while maintaining control over their ownership structure. However, it is important to fully understand the terms and conditions of an RSPA before entering into it, and to work with experienced legal and financial professionals to ensure a successful transaction.
