Your Partner Triggered the Buy-Sell Clause: What California Owners Can Do

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

Your partner has invoked the buy-sell clause and named a price well below what you think the company is worth. In California the starting point is that the agreed formula controls, because courts enforce clear contract language as written. (Civ. Code, § 1638.) You still have questions to ask. Did the trigger really occur? Was the formula applied correctly? Was the event manufactured in bad faith? Kolmogorov Law, P.C. handles buy-sell disputes for business owners in Orange County, Los Angeles, and across California.

Call (909) 235-6116 or contact us online to discuss a buy-sell notice you received or one you are about to send.

What a buy-sell agreement does

A buy-sell agreement is a contract among the owners of a closely held company that restricts who may own it. It may sit in a shareholder agreement, the bylaws, or an LLC operating agreement.

The California Supreme Court has described the typical version. It provides for a mandatory or optional repurchase of an owner's shares when a stated event occurs, most often death, retirement, or the end of employment. It also specifies how the price is set: an agreed price with periodic revisions, a formula based on book value or capitalized earnings, or a third-party appraisal or arbitration. (Stephenson v. Drever (1997) 16 Cal.4th 1167, 1173.)

Those two pieces, the trigger and the price, are where the disputes live.

Did the trigger actually occur?

Read the definition before you read the price.

A clause triggered by termination "for cause" depends on what cause means in the agreement and whether the facts fit. A disability trigger usually requires a period of incapacity and sometimes a physician's certification. A deadlock trigger may require a failed vote or a mediation step first. Many clauses give the buyer a fixed window to elect, and an election made late may be no election at all.

California's interpretation rules apply. A contract is read to give effect to the mutual intention of the parties at the time of contracting. (Civ. Code, § 1636.) The whole document is taken together, each clause helping to interpret the others. (Civ. Code, § 1641.) A buy-sell provision that seems clear in isolation can look different next to the employment, vesting, or amendment sections.

The price: formulas, stale values, and appraisals

Most owners call me about the number.

If the agreement sets a formula, the formula generally governs, even when a current appraisal would come in higher. In one Court of Appeal case, a departing shareholder argued she was owed "actual" fair market value instead of the value last set by the board under her repurchase agreement. She lost. The agreement did not require any particular valuation method, and she had no evidence that the board's figure was set in bad faith or was objectively unreasonable. (Daly v. Yessne (2005) 131 Cal.App.4th 52 [31 Cal.Rptr.3d 420, 425-426].)

That leaves three productive lines of attack.

The inputs. A book value formula is only as good as the books. Unrecorded receivables, accelerated write-offs, and insider compensation all move the result.

The stale certificate. Many agreements call for the owners to agree on a value every year. They do it once and never again. Whether a ten-year-old figure still binds depends on the fallback language and on what the parties intended when they signed.

The appraisal process. If the clause calls for appraisers, their selection and instructions matter more than anything argued afterward. California's arbitration statute defines "agreement" to include agreements providing for valuations and appraisals. (Code Civ. Proc., § 1280, subd. (a).) A completed appraisal can therefore be as hard to undo as an arbitration award, a subject covered on our page about confirming or vacating an award.

Valuation methods and discounts are explained on our buyout valuation page.

Shotgun clauses

A shotgun clause lets one owner name a price. The other must then buy at that price or sell at that price, usually within a short period.

The design is supposed to keep the offer honest. In practice it favors the owner with cash or a lender. If you receive a shotgun notice, the clock and the financing are your first two problems, and the price is the third. These clauses often appear as the exit from a 50/50 deadlock.

Good faith limits on a manufactured trigger

A formula is hard to attack. A trigger engineered to exploit the formula is a different matter.

Every California contract carries an implied covenant of good faith and fair dealing. When the majority fires a minority owner without a business reason shortly before a sale, and then invokes a book-value repurchase, the question is whether the power to terminate was used to take the benefit of the bargain. Courts look for evidence, not suspicion. Timing, internal emails, and what the majority knew about a pending deal usually decide it.

If you are the owner being bought out

You probably remain an owner until you are paid.

In Stephenson, a shareholder-employee was terminated, which triggered a repurchase. The Supreme Court held that he remained a shareholder, with the rights of one, until his shares were valued and the price tendered, because the agreement did not say otherwise. (Stephenson, supra, 16 Cal.4th at p. 1174.) The court also refused to read the agreement as relieving the majority of its fiduciary duties to him in the meantime. (Id. at pp. 1178-1179.)

Use that period. Request the financial records the formula depends on. Object in writing to any step you dispute. Do not sign a transfer, release, or resignation until the price question is settled.

If you are the owner exercising the clause

Follow the agreement to the letter. Give notice the way it says, within the time it says, to the people it names.

Tender the price or the first installment when due, and document it. If payment is over time, expect the seller to ask for a note and security. And if the other owner refuses to close, a court can be asked to order the transfer, as our specific performance page explains.

A negotiated exit is often cheaper than a contested one. Our partnership buyouts guide covers that path.

What to bring to the first meeting

Bring the buy-sell agreement and every amendment, along with the bylaws or operating agreement. Add the notice that invoked the clause, any valuation certificates signed over the years, three years of financial statements and tax returns, and your employment agreement if the trigger was a termination.

Frequently asked questions

My partner triggered the buy-sell clause and is offering a formula price far below what the company is worth. Do I have to accept?

You usually must accept the formula the agreement sets, but not necessarily your partner's arithmetic. California courts enforce a clear buy-sell pricing term even when it produces a low number. Check whether the triggering event truly occurred, whether the formula was applied to accurate financials, and whether the trigger was engineered in bad faith. Any of those can change the result.

Is a buy-sell agreement enforceable in California?

Generally, yes. The California Supreme Court has said a buy-sell agreement among owners of a closely held company remains a contract, subject to the ordinary rules on validity, interpretation, and enforcement. Courts give effect to the parties' mutual intention at the time of signing and read the document as a whole. Most disputes concern whether a trigger occurred and how the price is calculated.

I was fired from the company I co-own and the shareholder agreement says my shares get bought back. Am I still a shareholder in the meantime?

Probably, unless the agreement says otherwise. The California Supreme Court held in Stephenson v. Drever that a terminated shareholder-employee stayed a shareholder, with the rights that come with it, until his shares were valued and the price was tendered. The contract there set no earlier cutoff, and the court would not imply a term that freed the majority from its fiduciary duties to him during that period.

What is a shotgun clause in a buy-sell agreement?

A shotgun clause allows one owner to name a price per share or unit. The other owner must then either buy at that price or sell at that price within a set time. California courts generally enforce the clause as written, like other contract terms. Because it rewards the owner with ready financing, the response deadline matters as much as the number.

What happens if the stated value in a buy-sell agreement was never updated?

It depends on the fallback language. Many buy-sell agreements call for an agreed value each year and switch to an appraisal or formula if the last certificate is too old. Where there is no fallback, a California court looks to the mutual intention of the parties when they signed, and the outcome is harder to predict.

Talk to a California partnership dispute attorney

If a buy-sell clause has been triggered, or you are deciding whether to trigger one, call (909) 235-6116 or contact us online. I handle each matter personally from the first meeting through trial. Kolmogorov Law, P.C. is located at 327 Magnet, Irvine, CA 92618, and represents owners in Orange County, Los Angeles, and throughout California. See our partnership dispute practice for related matters.

This page provides general information about California law and is not legal advice. Outcomes depend on the agreement, the facts, and the court.