This article is for Irish business co-founders who are facing tension about ownership or worried about what happens if one founder wants to leave.
If you're wondering how to handle a co-founder exit without destroying your business or ending up in expensive legal battles, this guide covers shotgun clauses, good leaver/bad leaver provisions, and what happens if you don't have proper exit mechanisms in place.
Key Takeaways
• Good leaver and bad leaver provisions determine exit value: good leavers receive fair market value, bad leavers get nominal value. • Shotgun clauses force fair pricing by requiring the receiving shareholder to either sell or buy at the stated price. • Without proper exit mechanisms, you face expensive court proceedings or business deadlock that destroys company value. • Mediation resolves founder disputes in weeks at lower cost than litigation, which takes months or years. • Section 569 winding up petitions are the nuclear option: all assets get sold and business value evaporates through liquidation.
Laura Ryan is a practising Barrister at the Bar of Ireland. She graduated from the Honourable Society of King’s Inns in 2024, having previously qualified and practised as a Chartered Accountant in a big four accounting firm.
What's the difference between a good leaver and a bad leaver?
A good leaver exits on acceptable terms like retirement, board-approved resignation, or illness, and typically receives fair market value for their shares. A bad leaver exits due to serious issues like gross misconduct, breach of duties, or resigning without proper notice, and might only receive nominal value or the lower of market value and original purchase price.
How does a shotgun clause actually work in practice?
One shareholder offers to buy the other's shares at a specific price, and the receiving shareholder must either sell at that price or buy the offering shareholder's shares at the same price. This forces both parties to name a genuinely fair price because they might end up on either side of the transaction.
What's the difference between a shotgun clause and a Russian roulette mechanism?
Shotgun clauses allow 50-50 splits where one party buys the other's shares, while Russian roulette forces a complete exit by one party—you either sell all your shares or buy all the other founder's shares at the stated price. Russian roulette is higher stakes with no middle ground, working best when both shareholders have equal shareholdings and financial resources.
Should I try mediation before using a shotgun clause or going to court?
Yes, mediation is worth trying first because it costs significantly less than legal proceedings, can resolve disputes in weeks rather than months or years, and preserves business relationships. Even if mediation fails, you've only spent a few thousand before proceeding to more expensive options.
What happens if we don't have any exit mechanisms in our shareholder agreement?
Without proper mechanisms, you face deadlock where one founder can't force the other to sell, the company can't function effectively, and business value declines as the dispute continues. Your only options are expensive court remedies under the Companies Act 2014, like petitioning for relief from oppression (Section 212) or company winding up (Section 569), which can destroy business value.
Can the court force my co-founder to buy me out if I'm a minority shareholder?
Yes, under Section 212 of the Companies Act 2014, minority shareholders can petition the court for relief from oppression, and the court can order the majority shareholder to purchase your shares at fair value. However, you must prove that company affairs are conducted in a manner oppressive to shareholders, which is a high legal threshold requiring extensive evidence and significant legal costs.
Why do founder disputes damage the business even before they're resolved?
While you're arguing about valuation, competitors move ahead, customers sense instability, and employees start looking elsewhere—the longer the dispute continues, the more value the business loses. Unresolved disputes also create ongoing legal costs that come directly from company funds or personal resources that could be invested in growth.
What's the "nuclear option" if my co-founder and I can't resolve our dispute?
Section 569 of the Companies Act 2014 permits shareholders to petition for company winding up where it is just and equitable to do so. This means all assets get sold, debts get paid, and remaining funds distribute to shareholders—but nobody wins because business value evaporates through the liquidation process.
