The mandatory buy-sell clause in the event of a dispute, also known as a “shotgun” clause, allows a shareholder to offer his or her shares for sale to the other shareholder or shareholders, at the price and on the terms he or she specifies in the
If one or all of the other shareholders accept, either expressly or tacitly, the offeror’s purchase offer within the time limit set for doing so, they then agree to sell all of his or their shares to the offering shareholder, who, in turn, undertakes to purchase them in accordance with the terms of his or her tender offer; similarly, any co-shareholder who submits a counteroffer to the offering shareholder is deemed to have accepted the latter’s purchase offer. However, if the latter reject this offer within the time limit set for doing so, the offering shareholder is then ipso facto deemed to have agreed to sell, and his or her co-shareholders are then ipso facto deemed to have agreed to purchase all of the offering shareholder’s shares, at the same price and on the same terms. Thus, in the event of such a presumption of purchase by the co-shareholder(s) who rejected the offering shareholder’s purchase offer, the sale of the latter’s shares is deemed to have been agreed upon at a sale price per share and under terms and conditions that are identical to those set forth in the offering shareholder’s initial offer.
The number of shares held and the financial situation of the various shareholders must be assessed before deciding to include this type of clause in a purchase and sale agreement. Shareholders should be on an equal footing to do so.