Put Option Clause Template (Copy, Paste & Adapt)
What is a Put Option Clause?
A put option clause gives shareholders—especially directors, partners, and minority investors—the right to require the company or other shareholders to buy their shares if certain events occur. This provides a clear exit route and protects against being trapped in a partnership, startup, or limited liability company after incorporation.
Who Needs It and Why?
Best for: Minority shareholders, directors, and partners who want a guaranteed exit route from a startup, partnership, or limited company.
Key risk if missing: You could be forced to remain a shareholder with no way to realise your investment, especially if relationships break down.
Typical UK challenge: If not included in the shareholders’ agreement or articles of association, you have no automatic right to force a buyout.
How It Works in Practice
Example:
You’re a director and minority shareholder in a limited liability startup. If you resign or there’s a deadlock, you can trigger the put option clause, requiring the company or other shareholders to buy your shares at a pre-agreed valuation. Without this, you might be stuck with illiquid shares and no exit.
Common Pitfalls and Legal Nuances
The clause must be in the shareholders’ agreement or articles of association to be enforceable for any partnership, startup, or limited company.
The valuation formula should be clear and objective to avoid disputes.
Funding the buyout can be a challenge—ensure the company or shareholders have the means to pay.
FAQ
1. Does a put option clause guarantee I’ll get paid?
Only if the company or shareholders have the funds. Consider including provisions for staged payments or escrow.
2. Can directors and partners use a put option clause?
Yes, if the clause is drafted to include directors and partners, not just ordinary shareholders.
3. Is a put option clause automatic in UK law for startups or partnerships?
No, it must be written into your shareholders’ agreement or articles of association.
4. What events can trigger a put option?
Common triggers include resignation, dismissal, deadlock, or a set date after incorporation.
5. How is the buyout price set?
The price should be determined by a clear formula—such as fair market value, an independent valuation, or a multiple of profits.
Summary / Action Steps
Review your shareholders’ agreement and articles of association for a put option clause, especially if you’re a director, partner, or minority shareholder in a startup, partnership, or limited liability company.
If missing, negotiate its inclusion before disputes arise.
Use the template above as a starting point, but adapt it to your company’s needs and structure.
Disclaimer: This content is for general information only and does not constitute legal, financial, or tax advice. Outcomes may vary depending on your individual circumstances.
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