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by worldvoyageur 4401 days ago
Traditional shotgun clauses have edge cases that can produce bad outcomes.

A better model for a shotgun clause is one in which each partner names the price they would pay for the company. The partner who names the higher price then buys the company at the price half way between the two prices. Both partners win. The buyer gets the company at a discount to what they were prepared to pay, while the seller gets a premium to what the company was worth to them.
2 comments
csense 4401 days ago
With this approach, the first partner who reveals their offer will be at a disadvantage. If they want to buy, they can offer (otherguy + epsilon), and if they want to sell, they can offer (otherguy - epsilon). (Where "otherguy" is the other cofounder's price, and epsilon is a small number like $0.01.)

To fix this, you need to have both parties commit to their prices before anyone learns anyone else's price. For example, you could require both parties to mail their offers to the company lawyer, who is only allowed to reveal them when both offers have arrived.

Of course, with the above solution, you have to trust a human being (the lawyer) to be impartial and not collude with one of the cofounders against the other. For the paranoid, you can instead use a protocol that trusts cryptography instead of humans. You could have each person choose a random nonce, publish H(price + "#" + nonce). When everybody's published a hash, everyone then reveals their price and their nonce -- you know the price was chosen without knowledge of the other party's offer. (Of course each person needs a public key to sign the hash as well, to make sure a participant can't legitimately claim "I didn't send that.")

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TheCapn 4401 days ago
Seems overly complicated... couldn't you just meet with the lawyer, each sit at one end of the table then write your price down and hand it to the lawyer all in person?
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ronaldx 4401 days ago
Slightly easier fix that doesn't immediately require a trusted middleman: swap pieces of paper after committing that anyone who doesn't reveal loses his stake in the company for 0.
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jacquesm 4401 days ago
> The partner who names the higher price then buys the company at the price half way between the two prices.

That's a nice twist. I used 'person that quotes highest buys out the other parties at that price', but yours is even better I think. Thanks!

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ronaldx 4401 days ago
IMHO your way is better because the bids will be more genuine.

The parent way can be gamed: the loser may benefit from deliberately bidding a bit higher than they would otherwise to force the winner to pay more.

(Although you can argue this both ways, and auction theory does, I feel like this quirk could create animosity)

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