Shotgun Clause Lawyers

What is a shotgun clause?

Shotgun clauses are commonly found in shareholder agreements to deal with the sale of shares between shareholders.

A unanimous shareholder agreement is contract between all the shareholders of a corporation outlining the rights and responsibilities of the shareholders regarding the business and affairs of the corporation.

Unanimous shareholder agreements cover many subjects, and commonly include clauses regarding the ability of shareholders to sell their shares.

One common clause addressing the sale of shares is a shotgun clause. The basic mechanism of shotgun clause allows one shareholder to offer to purchase another shareholder’s shares at a specified price. The receiving party then has the option to agree to sell their shares at the specified price or purchase the offering party’s shares at that same price. The benefit of a shotgun clause is it allows the parties to avoid extensive disputes over the value of the company.

How do I exercise a shotgun clause?

To exercise a shotgun clause, it is important to strictly follow the procedures set out by the clause. Both parties must ensure that all communication regarding the offer and the response to the offer complies with the wording of the shotgun clause.

For example, shotgun clauses often prescribe strict time limits for the parties to exercise their rights under the clause. If these timelines are not followed, a Court may decline to enforce the terms of the shotgun clause.

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