Understanding the Shotgun Clause: A Key Provision in Business Contracts
Definition & Meaning
A shotgun clause is a provision in a buy-sell agreement that allows one partner in a business to offer their ownership interest to another partner at a specified price. If the other partner declines to buy at that price, they must then sell their own interest to the offering partner for the same amount. This clause is designed to encourage commitment among partners and maintain stability in the business venture.
Legal Use & context
Shotgun clauses are commonly used in partnership agreements and joint ventures. They help ensure that all partners are invested in the success of the business. This term is relevant in areas of business law, particularly in contracts and corporate governance. Users can manage these agreements themselves using legal templates provided by services like US Legal Forms, which are drafted by qualified attorneys.
Real-world examples
Here are a couple of examples of abatement:
Example 1: In a partnership of three individuals who own a tech startup, Partner A decides to sell their share. They offer their interest to Partner B at a price of $100,000. Partner B can either accept the offer or sell their own share to Partner A for the same price.
Example 2: (hypothetical example) In a restaurant partnership, if one partner wants to exit the business, they can trigger the shotgun clause. If the remaining partner does not want to buy, they must sell their interest to the exiting partner at the proposed price.