Shotgun Clause
Mechanism in a shareholders' agreement that lets one partner offer to buy out the other at a set price — the other must either accept, or buy out the first partner at the same price.
Definition
The shotgun clause (sometimes called a “forced buyout clause”) is a mechanism written into a shareholders’ agreement to resolve deadlocks between partners. It works simply: one shareholder offers to buy out the other at a price they set. The other shareholder then has two options — accept and sell at that price, or flip the offer and buy out the first shareholder at the same price.
In French-language Quebec documentation, you’ll see clause shotgun used for the same concept.
The mechanism forces the initiator to propose a fair price, since they could end up as the seller rather than the buyer. It’s a last-resort tool, designed to avoid prolonged gridlock between business partners.
Why the shotgun clause matters in a business sale
For an SME owner in Quebec thinking about selling, the shotgun clause can trigger an unplanned sale — or complicate a planned one. If your partner invokes the shotgun clause, you have to react quickly: accept their offer (and sell your shares) or line up the financing needed to buy out theirs. Response windows are generally short (30 to 60 days), which leaves little room to manoeuvre.
The clause can also become an obstacle if you want to sell the business to a third party. Your partner could invoke the clause to block the transaction or force a negotiation on their own terms. That’s why it’s essential to understand how the shotgun clause, the right of first refusal, and the drag-along / tag-along clauses interact in your shareholders’ agreement.
The financial stakes are significant. If the clause is invoked and you don’t have the cash or financing to buy out your partner’s shares, you’ll be forced to sell — potentially at a price below what you would have obtained on the open market. A forward-looking seller consults their broker and lawyer before that kind of situation arises.
What every seller should know
- Reread your shareholders’ agreement now — understand the exact terms of your shotgun clause (timelines, procedures, exclusions) before it’s invoked.
- If you have a partner and you’re thinking about selling, discuss your intentions openly — invoking a shotgun clause is a hostile move that can destroy a business relationship.
- Make sure you have access to emergency financing if the clause is invoked against you — response windows are short.
- Consult a broker to understand the fair market value of the business before any shotgun situation arises — a price set without market knowledge is rarely optimal.