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Issues in Buy-Sell, Push-Pull, Russian Roulette or Texas Shootout Provisions

05.11.12

Introduction

Part of the discussions or negotiations between owners of an entity at the inception of their relationship concern how the owners might resolve their future disagreements or terminate their relationship. One of those resolution or termination methods – though usually considered one of the most extreme methods – is the forced buy-sell provision.

The provision, which is known by many names, allows one owner or group of owners (the “initiating owner”) to force the other owner or group of owners (the “non-initiating owner”) to either (1) buy all of the initiating owner’s ownership interest in the entity or (2) sell all of the non-initiating owner’s ownership interest in the entity to the initiating owner. Not infrequently, the provision also contemplates that the initiating owner will name a price at which it will either sell or buy, and the non-initiating owner will decide whether to buy or sell at that price. As indicated below, however, that pricing mechanism is not an essential element of a forced buy-sell provision.

The buy-sell provision may be in a separate agreement, but it is typically part of a more comprehensive agreement governing the owners’ relationship, such as a shareholders’ agreement, a partnership agreement, or an LLC agreement. It most often is considered as much a deadlock-resolution provision as an exit provision and arises in the context of two owners or two groups or sets of owners.

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