Russian Roulette Shareholders Agreement: What You Need To Know
The term “Russian Roulette” is often associated with a dangerous game where players load a single bullet into a revolver, spin the cylinder, place the gun to their head, and pull the trigger. However, in the corporate world, Russian Roulette refers to a type of shareholders agreement that can be equally dangerous if not handled correctly.
What Is A Russian Roulette Shareholders Agreement?
A Russian Roulette Shareholders Agreement is a legal contract between co-owners of a business entity that outlines how shares may be sold to other shareholders in the event of a disagreement or dispute. The agreement allows one shareholder to initiate a forced sale of their shares to another shareholder at a predetermined price. The shareholder who initiates the sale then has the option to either buy the other shareholder`s shares at the agreed price or sell their own shares to the other shareholder at the same price.
While a Russian Roulette Shareholders Agreement can offer a solution to disputes between co-owners, it can also create a hostile environment, where shareholders are encouraged to take advantage of their power. If one shareholder believes that the other shareholder undervalued their shares during the buyout, the situation can escalate quickly and damage the business relationship.
How Do You Draft A Russian Roulette Shareholders Agreement?
If you are considering a Russian Roulette Shareholders Agreement, it is essential to seek the advice of an experienced business lawyer to ensure that the document is legally enforceable and protects the interests of all shareholders. Here are some key points to keep in mind when drafting the agreement:
1. Share Price: The agreement should include a formula or method to determine the share`s value to avoid disputes over pricing.
2. Trigger Event: The agreement should specify the trigger event that will initiate the forced sale of the shares. Common trigger events include the death or disability of a shareholder, the breach of a key contract, or a significant loss of revenue.
3. Notice Period: The agreement should include a notice period to allow shareholders to prepare for the sale of shares and notify other parties who may be affected by the transaction.
4. Payment Terms: The agreement should outline payment terms, including payment method and timeframe.
5. Confidentiality: The agreement should include a confidentiality clause that prohibits shareholders from disclosing the details of the forced sale to third parties.
A Russian Roulette Shareholders Agreement can offer an effective solution to disputes between co-owners, but it is essential to approach the agreement with caution and seek the advice of an experienced business lawyer. The document should be carefully drafted to protect the interests of all shareholders and avoid potential conflicts that could harm the company`s reputation and bottom line.