Enforcing Bad Leaver Share Transfer Clauses In Early Deadlocks
Compulsory bad leaver transfers in equal shareholdings fail when triggered by board votes, requiring self-executing default clauses to survive deadlock.
shot-gun buy-sell
Meaning
A dispute resolution mechanism forces one of two equal shareholders to either buy the other’s equity or sell their own at a specified price. This drastic provision, known as a shot-gun buy-sell, is typically triggered when founders reach an irreconcilable deadlock. It ensures a rapid exit for one partner, resolving the corporate stalemate.
Contractual Trigger
Initiating partners must declare a price per share at which they are willing to either buy the other’s holdings or sell their own. The receiving partner has a fixed period to make the choice under the shot-gun buy-sell clause. This rule prevents the initiating partner from setting an unfair or artificially low price.
Valuation Equity
Financial resource differences between the partners can lead to unequal outcomes if one founder has significantly more liquid cash. A wealthier founder can initiate the process at a lower price, knowing the poorer partner cannot afford to buy them out. This creates a strategic advantage for the party with more personal wealth.
The mechanism can therefore result in a forced buyout that favors the wealthier shareholder.
Resolution Outcome
Achieving a rapid settlement provides a clean break and allows the remaining founder to run the company without interference. The transition preserves the operational continuity of the business.