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 ?

Shotgun clauses most often are encountered in situations involving two equal (50/50) shareholders, and stipulate that one shareholder can offer to sell his or her shares to the other shareholder at a price and on terms specified in the offer.

Assuming the shareholders are of relatively equal negotiating strength, a shotgun clause tends to ensure the liquidity of each shareholders interest.

Protecting Your Piece of the Pie

For example, USAs often have provisions called shotgun clauses. 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.

Risks of investing in private corporations

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