5 ms·

Shotgun clause

• steveplace 17y ago
  The "Mexican Standoff" variation of this is much more fun. In the case of two parties, you both come to the table with sealed envelopes, and inside those envelopes is a document saying how much you think the company is worth, and how much you will pay for the other parties' equity. You then open the envelopes and whoever has the highest number will then buy out the other according to their valuation.
  • KonaB 17y ago
    A game-theoretic analysis of the scenario you have described would be quite interesting. Do you have any links on that?
  • DenisM 17y ago
    It's not about fun, it's about establishing fair value when there is no open market.
• electromagnetic 17y ago
  This is a clause you have to be very careful with. I know of a case where Partner B made an offer to sell his shares at a low price in order to get Partner A's shares at a low price, what he didn't consider was that Partner A (who travels a lot, and whom was expected to spend a lot) actually had almost $200K in the bank and took the offer. Partner B had to beg and grovel to get the deal dumped. Partner A needed a partner at the time more than he needed control of the company, so B got extremely lucky.
  • DenisM 17y ago
    That's the whole point of the clause - the threat of counteroffer is there to prevent low-baling. On a related note, A should should have kicked B out - or B will eventually find another way to take advantage of A.
    • electromagnetic 17y ago
      A really should have but, with no children and he's already on retirement, I believe B would be getting the company anyway as they are old friends (this happened during a dispute). I believe they do have a clause in their agreement that should one of them pass on the remaining partner can buy out the others shares, opposed to them passing on to spouses.