A restricted common stock purchase agreement is a legal document that dictates the terms of purchasing restricted common stocks, which are shares of a company that are subject to certain limitations on transferability. These limitations may be imposed by the company`s articles of incorporation, bylaws, or shareholders` agreements.

When a company issues restricted common stock, it typically does so to limit the number of shareholders or to prevent the dilution of its existing shares. These shares may also be issued to key employees or investors who want to acquire a significant stake in the company.

A restricted common stock purchase agreement outlines the terms and conditions of the purchase, including the purchase price, the number of shares being acquired, and any restrictions on transferring or selling those shares. It may also include provisions regarding the transfer of ownership in the event of the shareholder`s death or disability.

One important aspect of a restricted common stock purchase agreement is the lock-up period. This is a period of time during which the purchaser is not allowed to sell or transfer the shares. Lock-up periods may vary in length, but typically range from one to three years.

Another crucial provision in a restricted common stock purchase agreement is the right of first refusal. This gives the company the right to purchase any shares that the shareholder wishes to sell before they can be offered to an outside party. This helps the company to maintain control over who owns its shares and prevents unwanted investors from acquiring a significant stake.

It`s important to note that purchasing restricted common stock is not without risk. These shares may not be publicly traded, and their value may be affected by a variety of factors, such as the company`s financial performance or market conditions. Before entering into a restricted common stock purchase agreement, it`s crucial to conduct due diligence on the company and seek professional advice from a financial or legal expert.

In conclusion, a restricted common stock purchase agreement is a legal document that outlines the terms and conditions of purchasing restricted common stocks. It is essential for both the purchaser and the company to fully understand the provisions of the agreement before entering into it. By doing so, they can ensure that the purchase is conducted fairly and that everyone`s interests are protected.