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Hey, I’m Tim! ☕

My mission is to help you build the best cofoundership possible.

But things don’t always work out the way you want them.

If your relationship is spiraling, there’s one last tool to prevent your business from unraveling in a messy, drawn-out dispute.

And even if everything’s smooth sailing now, it’s nice to know this is an option.

Enter the Shotgun Clause.

Locked & Loaded

The shotgun clause is a provision in your cofounder agreement that allows one cofounder to make an offer to buy the other’s shares at a specified price.

But here’s where it gets interesting: the receiving cofounder isn’t stuck with the decision to sell — they have two options:

1. Accept the offer: They can sell their shares at the offered price.

2. Flip the script and buy: They can buy the offering cofounder’s shares at the same price.

It creates a sense of urgency and forces both parties to negotiate in good faith.

It’s a game of chicken where both cofounders are motivated to be fair, because one of them might end up owning the whole business.

Why Should You Care?

It ensures fairness between cofounders, especially when things get complicated.

Imagine you and your cofounder have been working together for a couple of years, but recently, you’ve started to disagree on the direction of the company.

One of you wants to focus on new tech development, while the other wants to double down on marketing and sales. Deadlock.

This is a classic scenario where the shotgun clause comes into play.

Let’s say you want to pivot and offer $1 million for your cofounder’s shares:

• If your cofounder doesn’t want to sell, they can choose to buy your shares at $1 million instead.

• If they can’t afford it or don’t want to, they’ll have to sell their shares to you at that price.

It’s a clean, quick way to resolve the deadlock without dragging it out.

Why It Works

The beauty is that it helps sidestep lengthy negotiations and potential legal battles.

Instead of hiring expensive mediators or lawyers, the clause encourages both parties to settle quickly by offering a price that’s fair and reasonable.

The key here is that both cofounders are incentivized to negotiate in good faith.

• If the price is too high, you risk not being able to sell your shares.

• If it’s too low, your cofounder might not accept, and you could end up stuck in the company together.

The Catch

Of course, no solution is perfect.

While the shotgun clause can be incredibly effective, it’s important to understand the potential pitfalls.

• Power dynamics: Let’s say your cofounder is well-off and has the financial ability to offer a price that’s too attractive to turn down. If you’re not in the same financial position, you could end up having to sell your shares for a price that feels unfair because they’ve got the resources to force you out.

• Valuation issues: Agreeing on the right price can be difficult, especially if the business is still young. Both cofounders need to have a clear understanding of the company’s value to make the process work.

Should You Use It?

The shotgun clause is powerful, but it’s not something you want to throw in without careful thought.

It’s a solution, but not always the solution.

If you’re just starting to put together a cofounder agreement, this could be an option worth considering.

But as with any legal provision, it’s important to set clear terms from the beginning to avoid any surprises down the road.

^{This is not legal advice. Consult a lawyer for guidance on your situation.}

How I Can Help

If you’re reading about the Shotgun Clause and thinking, “I’m not sure we’d even make it to the negotiation table without things blowing up first,” you’re not alone.

Most cofounders struggle to have tough conversations because they don’t have the tools or structures in place.

That’s where coaching comes in.

Whether you’re facing a deadlock or trying to avoid one, I can help you handle challenges like this before they escalate. Click the link below.

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Thanks y’all,

Tim He