Would a ‘shotgun’ clause be helpful for your business?

| May 15, 2018 | Business Divorce

The beginning stages of a startup are the best of times. The sense of optimism combined with funding from angel investors can fuel passion for a new product or service. But like the old adage says, nothing really lasts forever. Even with a successful startup or partnership, one partner (or a group partners) may believe that they will just as successful on their own and want to break up the company. At the same time, neither party wants to buy out the other partner. What remains may be an ugly and consternate standoff that threatens the future of the partnership.

So what happens when there is a standoff?

This is where a “shotgun” clause may be helpful.

The notion is based on western films where the main villain and the hero have a standoff to see who is going to draw their gun first. Partners in a company are daring each other to marshal enough funds to purchase the other’s shares and take over the company. Once the shotgun clause is invoked, it is akin to a serious offer for the company and there may be little that can be done to stop the process.

Think of it as an “it’s you or me” scenario.

A properly drafted shotgun clause will allow a specific amount of time for either party to gather their funds and purchase the majority share of the company. The quicker the funds are gathered and presented, the better. It would be akin to declaring “here are the funds to purchase; if I don’t hear from you in two weeks, our business divorce will be final.”

If you have questions about creating or contesting a shotgun clause, an experienced business law attorney can advise you.