Think of a shotgun clause as a high-stakes game of “buy or sell.” Partners use it to quickly resolve disputes and set prices. Here’s how it works:
- One partner makes an offer to buy another partner’s shares at a set price.
- The targeted partner must either sell at that price or buy the offering partner’s shares at the same rate.
- Timeframe? Usually a month or less.
Seems fair and simple, right? But there’s a catch. The one making the initial offer is taking a gamble. The offer could be accepted or flipped back on them, forcing them to sell. It’s a fine line, setting a price that’s neither a steal nor a rip-off.
Mostly, the shotgun clause surfaces when the business hits a snag or partners can’t agree on how to run things. It’s a fast, albeit blunt, way to force a decision.
However, a shotgun breakup is not always as fair as it might seem. The partner who can pay up the quickest—often the one with deeper pockets—usually wins, not necessarily the one who values the business more. This week we dropped an interview with Mark Ferrier, the founder of TRAFFIKGROUP, which was acquired by Onex in an eight-figure exit.
Mark started TRAFFIKGROUP after being on the losing end of a shotgun agreement at his former company, LAUNCH!
Mark was a minority shareholder of LAUNCH! and with no money to speak of outside of the business, when he reached an impasse with his former partners, they triggered the shotgun clause in their agreement, offering Mark $214,000 for his shares in their business. With little money or time to raise the funds to buy them out at the same price, Mark agreed to leave and took the $214,000 and started TRAFFIKGROUP.
📽️ Clip of the Week
In this clip, Mark breaks down how shotgun agreements work.
📣 Quote of the Week
“This one clause actually drives a lot of clarity around what you want in these tense situations.”
– Mark describes the benefit of a shotgun clause.
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