Drafting Reserved Matter Schedules for Venture Capital Shareholders
Effective venture capital reserved matter schedules require clear voting thresholds, cascading subsidiary covenants, and fallaway provisions to prevent deadlock.
Russian Roulette Buy Sell
Meaning
A procedural method for resolving a deadlock between two equal shareholders requires one party to name a price for the entire business. This russian roulette buy sell clause forces the other party to either buy the first party’s shares or sell their own shares at the stated price. The mechanism ensures a clean exit because the party setting the price must be willing to accept either outcome.
Valuation Method
Setting the share price becomes a test of fairness for the initiating shareholder. In a russian roulette buy sell, an offer that is too low allows the other party to buy the company cheaply, while a price that is too high forces the initiator to pay an excessive amount if the other party chooses to sell. This balance encourages a realistic market valuation.
Partner Divorce
Disputes over the direction of the company often trigger the use of this clause. Once the process of a russian roulette buy sell begins, the relationship between the partners is effectively over. The speed of the resolution prevents a prolonged legal battle that could damage the operations of the business or destroy its reputation.
Share Transfer
The closing of the transaction occurs rapidly after the second party makes their choice. Completion of the russian roulette buy sell results in one party owning the entire company and the other receiving the cash equivalent of their stake. This finality is why such clauses are common in fifty-fifty joint ventures where no other tie-breaking vote exists.