Stock Cleanse Agreement

Stock Cleanse Agreement: What It Is and How It Works

A stock cleanse agreement is a legal document between a company and its shareholders that outlines the terms and conditions of a stock buyback program. Essentially, the agreement allows a company to purchase its own outstanding shares in the market, effectively reducing the number of shares available and potentially boosting the value of the remaining shares.

Why Companies Use Stock Cleanse Agreements

There are a few reasons why a company might choose to implement a stock cleanse agreement. One of the most common reasons is to increase shareholder value. By reducing the number of outstanding shares available, a company can increase the earnings per share (EPS) for its stock. This can make the stock more attractive to investors, potentially driving up the stock price.

Another reason for implementing a stock cleanse agreement is to return value to shareholders. If a company has excess cash on hand and no immediate plans for investing it in the business, it may choose to use that cash to repurchase shares. This can effectively return value to shareholders without requiring the company to pay out dividends.

Finally, some companies may use stock cleanse agreements as a defensive measure. If a company is concerned about a hostile takeover attempt, it may choose to implement a stock buyback program as a way to make it more expensive for the would-be acquirer to gain a controlling interest in the company.

How Stock Cleanse Agreements Work

A stock cleanse agreement typically outlines the terms and conditions of the stock buyback program, including the maximum number of shares the company is authorized to repurchase, the time frame for the buyback program, and the purchase price for the shares.

The purchase price for the shares is typically set at a premium to the current market price, as a way to incentivize shareholders to sell their shares back to the company. The premium is often calculated as a percentage above the current market price, with the exact percentage varying depending on market conditions and other factors.

Once the terms of the stock cleanse agreement are agreed upon, the company will typically begin purchasing shares in the open market. This can be done through a broker or investment bank, or directly through the stock exchange. Once the shares are purchased, they are typically retired and taken off the market, reducing the number of outstanding shares.


Stock cleanse agreements can be a powerful tool for companies looking to increase shareholder value, return value to shareholders, or defend against hostile takeover attempts. By repurchasing outstanding shares, a company can effectively reduce the number of shares available and potentially boost the value of the remaining shares. If you`re a shareholder in a company that`s considering a stock cleanse agreement, it`s important to review the terms of the agreement carefully and consult with a financial advisor to ensure it`s in your best interests.