April 30, 2014

Many business owners have a buy-sell arrangement set up for the future. It’s helpful to draw out these directions in advance, especially when there is the potential that future owners or part-owners might get gridlocked with one another. In these situations, buy-sell directions can help disputing parties move forward.

It’s possible that you’ve already heard about a shotgun buy-sell arrangement, but a quick draw agreement is a bit different. Under a shotgun, the offering individual stipulates a price. The offerree then has the option to buy those shares or to sell their own shares to the offeror. The exact timing isn’t a major issue in this situation, since the offeree retains the option to either buy or sell. In some ways, this can even be seen as a disincentive to pull the trigger.

All that changes under a quick draw arrangement. Under a quick draw, either side can provide a notice to purchase the other’s shares at a price that is determined through an appraisal process. This can happen after a contractually defined “trigger event”, but the timing of the trigger pull is essential in quick draw. Simply put, timing is everything.

Under quick draw, buyer and seller designation is determined simply by who submits their notice to purchase the other’s shares first. A difference of even just minutes can determine who gets to buy and who gets to sell. This complex process was recently held up in Mintz v Pazer, in which the judge supported this out of the box buy-sell arrangement.

If you’d like to learn more about your buy-sell options and put a plan for the future in motion today, reach out to us at 732-521-9455 or email us at info@lawesq.net