{"id":17165,"date":"2024-11-11T06:00:04","date_gmt":"2024-11-11T06:00:04","guid":{"rendered":"https:\/\/letslaw.es\/?p=17165"},"modified":"2024-11-07T10:26:58","modified_gmt":"2024-11-07T10:26:58","slug":"texas-shoot-out-shareholder-agreement","status":"publish","type":"post","link":"https:\/\/letslaw.es\/en\/texas-shoot-out-shareholder-agreement\/","title":{"rendered":"The Texas Shoot-Out procedure in a Shareholder Agreement"},"content":{"rendered":"

The procedure known as Texas Shoot-Out is a clause used in <\/span>shareholders’ agreements<\/span><\/a>, especially in companies with several shareholders where conflicts may arise that are otherwise difficult to resolve. Although it has its origin in common law, it has been adopted and adapted in various jurisdictions, including Spanish law, to offer an effective solution in situations of corporate deadlock. The \u2018Texas Shootout\u2019 is a <\/span>formula that allows the shareholders to put an end to their differences quickly and definitively<\/b>, although it can be perceived as a drastic mechanism or last resort.<\/span><\/p>\n

It is a form of dispute resolution in which one of the shareholders makes an offer to buy the shares of the other shareholder at a certain price. The shareholder receiving the offer has two options: to accept the offer and sell his shares, or to buy the shares of the shareholder who made the offer for the same price per share. The logic behind this mechanism is <\/span>to force the parties to be as fair as possible with the price offered<\/b>, since whoever makes the offer must be prepared to act as both buyer and seller.<\/span><\/p>\n

Explanation of the procedure<\/span><\/h2>\n

This procedure is particularly useful in companies with few shareholders where there is an equal or almost equal participation in the capital stock, since, in such cases, conflicts can easily generate a blockage in the decision making process. <\/span>When the \u2018Texas Shootout\u2019 is used, it avoids the need for lengthy and costly judicial proceedings<\/b>, as well as the intervention of third parties, since it is the shareholders themselves who resolve the conflict under the established rules.<\/span><\/p>\n

In the context of Spanish law, the inclusion of a Texas Shootout in a shareholders’ agreement is considered valid and enforceable, as long as it does not violate mandatory rules of <\/span>commercial<\/span><\/a> or corporate law. Shareholders’ agreements in Spain are private agreements which, although they are not part of the company’s bylaws, have binding force between the parties that sign them. Therefore, the effectiveness of a \u2018Texas Shootout\u2019 will depend on the validity of the shareholders’ agreement and that it does not contravene fundamental principles of the Spanish legal system.<\/span><\/p>\n

It is essential that the wording be clear and precise to avoid ambiguous interpretations that may lead to further disputes. In addition, it is advisable to foresee some key aspects, such as the method of valuation of the shares, the deadline for the execution of the purchase or sale and the possible consequences in case of non-compliance.<\/span><\/p>\n

The main benefit of the \u2018Texas Shootout\u2019 is that it provides a quick and definitive solution to conflicts between shareholders<\/b>. It is a mechanism that promotes fairness, since it forces the shareholder making the offer to be realistic with the price, knowing that the other party may decide to buy from him instead of selling. It also avoids third party intervention and the costs associated with litigation.<\/span><\/p>\n

However, it also has some disadvantages. On the one hand, the pressure of having to decide whether to sell or buy within a certain time frame can be considerable, especially if the valuation of the company is uncertain or if you do not have the necessary liquidity to buy the shares. On the other hand, it can lead to unfair situations if one shareholder has much greater financial power than the other, since in such a case, the shareholder with greater economic capacity could take advantage of the procedure to acquire the entire company at a low price.<\/span><\/p>\n

Implementing a Texas Shootout<\/span><\/h2>\n

To implement a Texas Shootout effectively in a Spanish shareholder agreement, it is essential to follow some practical recommendations:<\/span><\/p>\n

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  1. Clear and detailed wording of the clause<\/b>: the clause should clearly specify how the process will be carried out, including the deadlines for making the offer and for deciding whether to accept or buy. It should be clear how the shares will be valued, what will be considered as non-compliance and what the consequences will be.<\/span><\/li>\n
  2. Valuation of the company<\/b>: it is crucial to define in advance the method for valuing the shares.<\/span><\/li>\n
  3. Consideration of the financial capacity of the shareholders<\/b>: since the procedure can be demanding in terms of liquidity, it is important to ensure that the shareholders can actually comply with the purchase or sale process.<\/span><\/li>\n
  4. Regulation of abuse of rights<\/b>: to prevent a partner from using the Texas Shootout opportunistically, it is possible to include clauses regulating cases in which it is considered that there has been bad faith or intent to harm the other partner.<\/span><\/li>\n<\/ol>\n

    The Texas Shootout is a procedure that, although drastic, can be an effective solution to resolve conflicts between shareholders in Spain. The key is in its correct implementation within the shareholders’ agreement, paying special attention to the wording of the clause and the particular circumstances of the company and its members. Although it is not a suitable tool for all cases, when applied with the proper precautions, it can avoid costly litigation and provide a quick way out of deadlock situations.\u00a0<\/span><\/p>\n

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