Shotguns and Deadlocks

Abstract

This Article studies business deadlocks and their resolution. We advance a proposal to reform the way that courts resolve business deadlocks and value business assets. Specifically, we argue that Shotgun mechanisms, where the court mandates one owner to name a single buy-sell price and compels the other owner to either buy or sell shares at the named price, should play a larger role in the judicial management of business divorce. Since the party proposing the offer may end up either buying or selling shares, the party has an incentive to identify and name a fair price. In addition, Shotgun mechanisms will avoid inefficient delays and administrative costs associated with external appraisers and auctions. Our proposal works within the framework of current statutory rules and case law. General partnerships and limited liability companies (LLCs), the most commonly chosen legal entities, are the focus of this study.