Russian Roulette Clause in Shareholders Agreement: What You Need to Know
If you are a shareholder in a company, it is important to have a shareholders` agreement in place to ensure that all parties involved understand their rights and obligations. One important clause that can be included in a shareholders` agreement is the “Russian Roulette” clause.
What is a Russian Roulette Clause?
A Russian Roulette clause is a provision in a shareholders` agreement that allows one shareholder to offer to sell their shares at a certain price per share. The other shareholders then have the option to either purchase the shares at that price or sell their own shares at the same price. If no shareholders choose to sell, the shareholder who made the initial offer is then required to sell their shares at that price to the other shareholders.
This clause is called the Russian Roulette clause because it is similar to playing a game of Russian roulette, where each participant takes turns pulling the trigger in a game of chance.
Why Include a Russian Roulette Clause in a Shareholders` Agreement?
The inclusion of a Russian Roulette clause in a shareholders` agreement can be beneficial for several reasons. Firstly, it can help to resolve disputes between shareholders when there is a disagreement about the value of shares in the company. It can also provide a fair and efficient way to determine the value of shares in the company, allowing shareholders to buy or sell shares at a predetermined price.
Additionally, the Russian Roulette clause can be used to prevent a minority shareholder from holding the majority shareholder hostage by offering to sell their shares at an exorbitant price. This clause ensures that the shareholder offering to sell their shares does not have an unfair advantage over the other shareholders.
Potential Drawbacks of a Russian Roulette Clause
Despite its potential benefits, the Russian Roulette clause is not without its drawbacks. Firstly, it can be time-consuming and expensive to implement, as it requires a valuation of the company`s shares to be conducted. This can be particularly challenging if the company has complex operations or a large number of shareholders.
Additionally, the Russian Roulette clause can create a level of uncertainty for shareholders, as it requires them to make a decision about whether to sell or purchase shares at a predetermined price. This uncertainty can create tension between shareholders, potentially leading to further disagreements and disputes.
The Russian Roulette clause is a provision that can be included in a shareholders` agreement to help resolve disputes about the value of shares in a company. While it has potential benefits, it is important to consider the potential drawbacks before deciding whether to include it in your agreement. If you are unsure whether a Russian Roulette clause is right for your company, it is best to seek the advice of a legal professional with experience in shareholder agreements.