Encyclopedia
Shotgun (buy-sell) clause
A partnership or shareholder clause where one owner names a price and the other must either buy or sell at it.
For example: Hypothetical: two co-owners disagree on a building and one triggers the shotgun clause. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you and a partner co-own a building and disagree on its future. Your agreement has a shotgun clause. One of you names a price, and the other must either buy at that price or sell at it. The deal ends the deadlock, but only works well if both can raise the money.
What I’d tell a friend
A shotgun clause can end a deadlock, but it favours the partner with easier access to cash. Get legal advice before you sign one.
Why it matters to you
Either partner can name a price and force the other to buy or sell at it. It ends a stalemate quickly, but the partner with more cash usually has the edge, so understand it before you sign an agreement that includes one.
How to use it in your deal
Co-owners should understand that the clause favours the party with money ready, since the other side may have only a short time to arrange financing. Check the deadlines, how the price is set, how closing works, and whether partial interests or mortgages complicate things. Price your offer carefully, since it might be accepted against you. Before triggering it, get legal and tax advice, and line up financing.
Lenders may need to consent to a change in ownership. If you're negotiating a co-ownership agreement, consider whether a shotgun suits the partners, or whether alternatives like a right of first refusal or appraisal-based buyout are fairer. Courts generally enforce these clauses as written, so the drafting matters.
Think about what happens if one partner is ill, divorcing or short of cash when it's triggered, since timing can be used against them. A short cooling-off or mediation step first can save a relationship.
Mistakes I see
Triggering without financing. Overlooking deadlines. Not considering tax.
In BC and Vancouver
Contract law and the Business Corporations Act govern; case law is on CanLII.
Official sources: CanLII (court decisions)
How it works
A shotgun buy-sell clause in a co-ownership or shareholder agreement lets one owner offer to buy the other out at a stated price. The other must either sell at that price or buy the first owner out at the same price.
It encourages a fair price, since the owner naming it could end up on either side.
What to weigh
Consider whether each owner could realistically fund a buyout, and how long they have to respond.
Have a BC lawyer draft or review the clause, including deadlines and how financing is handled.
Questions to ask before you sign
- What are the deadlines?
- How is the price set?
- Can I finance a buyout?
- What are the tax effects?
Keep reading
Related terms: Share sale, Change of control
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.