Buy Sell: The Texas Shoot Out Provision

gunslingerI love the story of two little boys fighting over the last piece of cake. Mom comes into the kitchen as they are pushing and shoving and with “Solomon – like” wisdom says,

“Johnny, Billy, there is enough for both of you. Johnny I want you to cut the cake into two pieces and Billy you get to choose which piece you want”

So it is with business partners. 

I am often asked to develop transition plans for businesses to be passed on to children. Occasionally parents insist on a 50/50 split. I don’t like these arrangements because they instantly create governance issues. My response is to always push the family to come up with a FORMAL plan on how they will “break the tie” in future disagreements and include that plan in the by – laws.

But my all – time favorite is the “Texas Shoot Out” Provision to be included in the buy – sell agreement.

It’s very simple:

Johnny can offer to buy Billy out at any time for a specific non negotiable price.

Billy has only two options:

  1. He must either accept Johnny’s offer; or
  2. Offer to buy Johnny out for exactly the same terms.

If Billy chooses #2 and reverses the offer Johnny MUST accept it.

Of course it could be Billy making the first offer to Johnny.

Either way, once one party makes an offer, the other MUST accept it or reverse it. Refusal to do either constitutes acceptance.

Kinda keeps things above board.

3 thoughts on “Buy Sell: The Texas Shoot Out Provision”

Leave a comment

Your email address will not be published. Required fields are marked *