July 17

Case Study: Buy-Sell Provisions and Valuation

In the world of shareholder agreements, the buy-sell provision, also known as a shotgun clause, stands as an important tool for resolving shareholder deadlock or facilitating the smooth exit of a shareholder. However, utilizing this provision requires astute judgment and an understanding of the business’s true value. Our case study explores how our valuation enabled one shareholder to make a strategic decision.


Jane and Mark were equal shareholders of a thriving business that offered specialized medical health services. Their unanimous shareholder agreement (USA) included a buy-sell provision – a clause that provides a way out in the event of a deadlock between shareholders.

A buy-sell provision also known as a shotgun clause, a push-pull provision, or “Texas shoot-out” clause, is a common type of provision in the USA designed to resolve deadlocks and allow for the smooth exit of a shareholder.

Here’s how a shotgun clause generally works:

  1. Trigger: One shareholder (the “Offeror”) triggers the shotgun clause by offering to buy the shares of another shareholder (the “Offeree”) at a specified price per share.
  2. The Offer: The Offeror must be willing to sell their shares at the same price, because once they trigger the clause, the Offeree has two options – sell their shares to the Offeror at the offered price, or buy the Offeror’s shares at the same price.
  3. Response: The Offeree has a set period of time (defined in the shareholder agreement) to decide whether to sell their shares or buy the Offeror’s shares. If they don’t respond within that time, they are usually deemed to have accepted the offer to sell their shares.

The benefit of a shotgun clause is its simplicity and finality. It provides a quick and definitive way to resolve deadlock situations and allow an owner to exit the business.

However, it can also have disadvantages. For example, it can lead to inequitable outcomes if one shareholder has significantly more financial resources than the other. The wealthier shareholder can set a low price for the shares, knowing that the other shareholder can’t afford to buy them out, and thus effectively forcing the other shareholder to sell.

Mark and Jane began to disagree on the strategic direction of the business.  Each accused the other of failing to live up to their part of the bargain – both in terms of time and resources.  There was no disagreement about financial management, but they disagreed on operational decisions.

One day, Mark decided he had enough.  He wanted to buy out Jane and keep the business for himself. He triggered the buy-sell provision. He offered to buy Jane’s shares at a certain price. According to the clause, Jane now had two options: sell her shares to Mark at his proposed price or buy his shares at the same price.

The Valuation

Jane was uncertain whether Mark’s offer reflected the true value of her shares. To gain clarity, she enlisted our help to perform a business valuation. We embarked on a thorough examination of the business’s financial records, customer base, growth prospects, and other factors pertinent to the business’s worth.

The Decision

Our analysis revealed that Mark’s offer was on the low end of our valuation range. In other words, we believed the business was worth more than what Mark was offering for Jane’s shares.

Armed with this new knowledge, Jane decided to turn the tables. Instead of selling her shares to Mark, she used the buy-sell provision to buy out Mark’s shares at the same price he had offered for her shares.


This case demonstrates the importance of understanding the implications of a buy-sell provision and the role of an accurate business valuation. By seeking professional valuation advice, Jane was able to make an informed decision that led to her gaining full ownership of a business that was valued higher than her partner’s initial offer.

In situations where a buy-sell provision is triggered, shareholders should consider seeking independent valuation advice. Such advice can provide a clearer picture of the company’s worth, helping them decide whether to sell their shares or, like Jane, turn the buy-sell provision to their advantage.

The case underlines the reality that while the buy-sell provision is a powerful tool, it must be used with care, and with a comprehensive understanding of the business’s true value.


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