Shotgun Clause


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Shotgun Clause

A provision in some shareholder or partnership agreement stating that if one shareholder offers to buy out the company at a certain price, the other shareholder(s) either must accept the offer or buy out the first shareholder at the same price. This is most common when two shareholders each own 50% of a business.
References in periodicals archive ?
Additionally an exchange mandated shotgun clause has been added to the terms of the warrants.
Under a shotgun clause, a shareholder (offeror) would be permitted to offer his/ her shares for sale (offer price) to the other shareholders (offerees) and those shareholders (offerees) would have the opportunity to purchase the shares at the offer price or to sell their shares to the shareholder (offeror) at the same offer price.
Assuming the shareholders are of relatively equal negotiating strength, a shotgun clause tends to ensure the liquidity of each shareholders interest.
Issues may arise in a shotgun clause where the shareholders have materially different negotiating strength.
Shotgun clauses permit a shareholder to require the other shareholders to either accept an offer to sell their shares or buy the shares of the offering shareholder.