Buy-or-sell, good leaver / bad leaver, drag and tag: cross options write the script of a separation while the relationship still holds. Their effectiveness depends on the drafting.
A separation is never prepared so well as when everything is still going well.
At the start, the understanding is perfect. Then the visions diverge, one shareholder wants to leave, another no longer wants to sell. And the company is stuck, held hostage by a conflict no one had anticipated.
Cross options make it possible to write, from the outset, the script of the exit. Each shareholder undertakes in advance to sell or to buy, on terms and at a price agreed in cold blood.
Three mechanisms, three situations
The alternative-offer clause (buy or sell, or “Texas” clause): in a deadlock, one shareholder sets a price; the other chooses to buy or to sell at that price. The Cour de cassation upheld it in a published judgment of 12 February 2025.
Good leaver / bad leaver clauses: the operating shareholder who leaves the company undertakes to sell their shares, at a price that varies with the circumstances of their departure.
Drag-along or a guaranteed buy-out: the minority shareholder undertakes to follow a third party’s offer for the whole, or may instead require their holding to be bought.
Effectiveness that depends on the drafting
These tools are powerful, but they do not forgive approximation. A few pitfalls come back regularly before the courts:
- the price must be determined or determinable by objective criteria, independent of the will of one party alone (art. 1591 Civil Code);
- duration: an agreement concluded “for so long as the parties remain shareholders” is of indefinite duration, and can therefore be terminated at any time;
- characterisation: put and call options exchanged on the same terms can be recharacterised as a completed sale;
- combination with an employment contract: a bad-leaver discount tied to a dismissal can be held to be a prohibited financial penalty, and an executive’s exit gain recharacterised as salary by the tax authorities.
A promise that can be enforced
Well drafted, the promise is remarkably effective. Since the 2016 reform, the promisor can no longer withdraw during the option period: exercise is enough to form the sale (art. 1124 Civil Code). The court can order the transfer of the shares, if need be in summary proceedings and under a penalty payment.
A shareholders’ agreement is negotiated in harmony. It reveals itself in conflict.
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Whether you are drafting an agreement, reviewing an existing one or a dispute is already open, our company-law lawyers will assist you.
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References: arts. 1124 and 1591 Civil Code; Cass. com., 12 February 2025, no. 23-16.290; Cass. com., 21 June 2023, no. 21-21.875; Cass. com., 6 November 2007, no. 07-10.620.
