In the Shareholder Agreement, shareholders may agree to limit how shares are treated in the event that a shareholder wishes to exit the corporation.
Some common provisions that permit share transactions include:
Right of First Refusal: When a shareholder wishes to sell their shares and part from the corporation, they must first offer to sell their shares to other shareholders at a fair value. If the shareholders cannot purchase them, the selling shareholder can offer them to a third party.
Shotgun Provision: A shotgun exit provision, also called a buy-sell agreement, may be used because of a shareholder dispute, and it specifies that Shareholder 1 can offer to buy Shareholder 2's shares, whereby Shareholder 2 can either sell at the offered price, or turn around and buy Shareholder 1's shares at the same price.
Piggy Back Provision: Also referred to as a "tag along" or "co-sale" provision, a Piggy Back provision applies to majority shareholders who intend to sell a significant portion of their shares. It protects minority shareholders because the buyer must also purchase their shares at the same price as the majority shareholder, therefore agreeing to purchase all the shares.