While the articles of association are the cornerstone of a company, it is always strongly recommended to supplement them with a partnership agreement, which can specify the terms and conditions governing the company’s operations.
The shareholder’s agreement can be particularly useful for dealing with the terms and conditions for a partner’s exit from the company.
There are numerous clauses for this purpose: pre-emption, approval, tag-along (joint exit right) or drag-along (joint exit obligation), etc. Contractual freedom allows for a plethora of rules to be laid down to govern a partner’s exit.
Today, in light of a recent ruling by the Court of Cassation, we take a closer look at the clause known as the “American clause,” “Texas clause,” “shotgun clause,” “buy-or-sell clause,” or “alternative offer clause.”
In practice, despite these multiple names, which may suggest otherwise, the mechanism of the American clause is relatively simple. It is widely favored by partners because it is designed to effectively (and somewhat radically) end a dispute between partners with a move worthy of the greatest poker tournaments:
“I will purchase your shares for euros; and if you refuse, you must purchase my shares at the same price of x euros.”
The risk of being bought out acts as a real safeguard, thus obliging the initial seller, in principle, to implement the clause in a conscious and reasoned manner.
American clauses, which have been in use for a long time, have recently been submitted to the courts for review. Following the example of the Court of Cassation, which was called upon to rule on their validity in a decision dated February 12, 2025.
The case specifically concerned the analysis of a clause under which the partners had agreed « that in the event of a serious and persistent disagreement likely to paralyze the functioning of the company and harm its interests, each partner could offer to sell their entire stake in the company to the other partner at the price and on the terms specified in their offer, with the beneficiary of the offer having 30 days to exercise the option. Failing this, the latter would then be required to sell their own shares to the partner who initiated the procedure at the price and on the terms specified in the initial offer. »
However, one partner refused to comply with this clause – wrongly, according to the Court of Cassation, insofar as:
– the triggering of the clause was subject to objective conditions, providing for an alternative offer clause that did not leave the setting of the price to the discretion of one of the parties, so that the sale became final upon the performance by the parties of their commitments under the shareholders’ agreement.
– The existence of a serious and persistent disagreement likely to lead to paralysis in the functioning of the company was clearly established in a context where the minority manager no longer had the confidence of the majority partner, who had voted against all the resolutions proposed by the former, including the one conferring on the manager the powers to complete the formalities necessary following the deliberations. In addition, the managing partner had filed a complaint against the majority partner for refusing to return a customer deposit. It should also be noted that the two partners were also in dispute over the new premises leased by the company and the transfer of its registered office.
This decision provides an opportunity to recall the principles that must be respected when drafting such clauses:
– The mechanism for triggering the clause must be precisely detailed;
– The price must be determined within the clause itself
– The clause must be based on objective conditions.
So, if you are a gambler and/or determined not to get bogged down in a conflict with your partners, it may be very worthwhile to include such a clause in your agreements.