The Exit Clauses
Put, call, shotgun, drag and tag, and what each does when the partnership sours
The thesis
Exit clauses are written when the partners get along and triggered when they no longer do. The one that looks fair on paper often favours whoever has more liquidity when it is exercised
What the study establishes
1
The reciprocal buy-sell clause favours the partner with more cash, not the one who is more in the right
2
The tag-along right protects the minority, and the drag-along right protects the majority's liquidity
3
The valuation mechanism decides the outcome more than the clause that invokes it
Contents
- The exit problem
- Put and call options
- The reciprocal buy-sell (shotgun)
- Drag-along and tag-along
- The valuation mechanism
- Deadlock and dissolution
- The mandate