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Shotgun Clauses: Good or Bad?
February 28, 2023
Shotgun Clauses: Good or Bad?
A "shotgun clause" is a rule in a shareholder agreement that forces shareholders to either buy or sell their shares at a certain price. It's often used in small companies where shareholders have a close relationship and want to ensure they can leave if they need to. In British Columbia, using a shotgun clause can have both positive and negative effects.
The clause can help settle disputes between shareholders and give shareholders an easy way to get their money out of the company. But it can also force a shareholder to leave without their agreement, which can be bad if they've invested a lot of time and money. Additionally, it can lead to undervaluation of the company if a shareholder wants to sell their shares for less than they're worth.
Before deciding to use a shotgun clause, it's important to consider both the advantages and disadvantages. Talking to a lawyer can help business owners make an informed decision. It's also important to remember that a shotgun clause is not necessary and may not be the best option for every company.
Lawyer
Aman Bindra and his team assist clients with all real estate, banking, and business matters, including purchases and sales of real estate and businesses, borrowing and lending, land development and construction, and leasing.
Aman has extensive experience working with individual, business and corporate clients throughout British Columbia. He regularly advises on and prepares agreements relating to land, asset, and share purchases, financings, and construction projects, and he assists with leasing, incorporations, partnerships, corporate reorganizations, and more.
Contact
Have questions? Need insight? Our team can assist you in examining your options and determining which path best suits your needs.
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