Shotgun Agreements: Advantages and Disadvantages to Breaking Board Deadlock, Establishing Price and Offers

Description

In theory, shotgun provisions in shareholder and operating agreements provide an elegant and efficient buy-out solution when business owners can't agree and need to divorce. Such provisions are often used to break deadlocks between owners, providing that one party decides on a trigger event and the other party chooses whether to buy or sell at the price.

While shotgun provisions are not typical, they exist in many company governance documents and buy-sell agreements. There remain many advantages to the use of such provisions, such as the ease of understanding and negotiation of terms and the establishment of a baseline reasonable price. However, the disadvantages of these provisions are numerous and varied. The shotgun terms are established on assumptions in market predictions that may or may not hold.

Corporate counsel should consider what revisions to a shotgun agreement shareholders may view as most beneficial. Parties must consider the implications of a trigger event under all reasonably possible scenarios.

Listen as our expert panel discusses shotgun provisions, best practices in structuring clear and enforceable buy-sell provisions with a reasonable triggering event, and what the advantages and disadvantages of continuing under this type of arrangement may be. The panel will address best practices for revising or replacing a current shotgun agreement.