Investors in joint ventures, start-ups and other new business enterprises are increasingly turning to expert, legal counsel to ensure their interests are protected.  Professionally drafted MoI and shareholder agreements is a key component of this strategy providing investors with comprehensive protection when dealing with internal disputes.

PJ Veldhuizen, MD of commercial law firm and dispute resolution specialist at Gillan & Veldhuizen Inc. explains the importance of air-tight contracts. “In today’s business environment investors must take every precaution to ensure their investments are secure.  Professionally drafted agreements provide a foundation for a successful business venture and the Texas Auction Clause, in particular, offers investors a comprehensive level of protection when dealing with potential internal disputes.”

The Texas Auction clause provides an effective tool for resolving shareholder disputes in 50:50 joint ventures, particularly when one or both partners wish to end the relationship. This clause stipulates that an initiating shareholder offers a price at which they will acquire the other shareholder’s shares. The other shareholder is then given the opportunity to offer the same amount in return for the purchase of the offeror’s shares in the company.  In some cases, an umpire may be appointed to oversee the offer or bidding process. The umpire then receives sealed bids from each party, which state the price at which they are willing to buy each other out. The highest bid ‘wins’, meaning the bidder must buy the other half-share in the business, and the ‘loser’ must sell their shares.

“The Texas Auction clause has both pros and cons,” says Veldhuizen. “On the plus side, it provides a quick and less expensive way to settle disputes between shareholders. On the downside, the clause can possibly limit the rights of shareholders to take legal action against one another.”

Overall, air-tight agreements put together by legal professionals are crucial for investors to protect their interests in any business venture. The Texas Auction clause provides an additional layer of protection, ensuring that disputes are resolved swiftly and cost-effectively.