Shotgun clause

Two-owner businesses eventually hit disagreements neither side can resolve — direction, compensation, whether to sell. A shotgun clause exists so a deadlock has a defined exit instead of dragging on indefinitely or ending up in court, and it is one of the most common provisions built into a Canadian SME shareholder agreement for exactly that reason.

Why the design tends to produce a fair price

Because the owner making the offer does not know in advance whether they will end up buying or selling at that price, the mechanism creates a strong incentive to set a genuinely fair number rather than a lowball one — set it too low, and the other owner may simply buy them out at that bargain price instead.

The mistake people actually make

Treating a shotgun clause as a gentle, rarely-used safety net rather than a real weapon. In practice it can be triggered opportunistically by whichever owner has readier access to financing, effectively forcing out a partner who is short on cash at that moment even where the underlying price is fair on paper — the clause tests financial readiness as much as it tests the price.

Nothing in Quebec’s Civil Code prevents shareholders from agreeing to the same mechanism, so shotgun clauses appear in Quebec shareholder agreements too, enforced there under ordinary contract law rather than any special statutory provision.