When starting a business, particularly a Limited Liability Company (LLC) or a Limited Partnership (LP), owners often include a buy-sell clause in the Operating Agreement to address the possibility of deadlock. While few partners anticipate serious disagreements at the outset, differences in strategy, management, or vision can eventually bring decision-making to a standstill. To resolve these situations, some agreements provide for a Russian Roulette provision, sometimes called a Push-Pull clause. Despite its dramatic name, this mechanism is designed to offer a decisive solution when disputes cannot otherwise be resolved.
What is a Russian Roulette Provision?
A Russian Roulette provision is one type of buy-sell clause designed to break deadlock between business partners. A deadlock occurs when shareholders or members cannot reach a consensus on decisions affecting the business. Because voting power is split equally, the company becomes stuck at an impasse. While there are many ways to address a deadlock—such as mediation, arbitration, or even liquidating the company—a buy-sell clause like the Russian Roulette provision is one of the most common solutions.
The Russian Roulette provision works by allowing one party to offer to buy the other party’s ownership interest in the company at a stated price—or, alternatively, to sell its own interest at that same price. Once the offer is made, the other party must decide: accept the offer and sell their interest, or counter with a buyout of the initiating party’s interest at the same price.
Because either party could end up being the buyer or the seller, there is a built-in incentive to propose a fair price. In theory, this ensures honesty and discourages “lowball” offers, since the initiating party risks having the same price applied to their own interest.
Benefits and Risks
Russian Roulette provisions can provide a clear and efficient mechanism for resolving deadlocks without court intervention or prolonged negotiations. Once triggered, the clause creates finality: one party exits while the other gains complete control, allowing the company to move forward under unified direction. For partners with comparable financial resources and a mutual desire for resolution, this can be a practical and effective tool.
However, the risks are significant. The initiating party must be prepared for the possibility that the offer will be countered. Instead of buying out their partner, they may be forced to sell their own interest and lose control of the company. Moreover, if one partner has greater financial resources, the provision can unfairly favor the stronger party, who might set a price the weaker partner cannot realistically afford to match. Most importantly, once a Russian Roulette clause is invoked, the business relationship is typically over.
The Russian Roulette provision works by allowing one party to offer to buy the other party’s ownership interest in the company at a stated price—or, alternatively, to sell its own interest at that same price. Once the offer is made, the other party must decide: accept the offer and sell their interest, or counter with a buyout of the initiating party’s interest at the same price.
Because either party could end up being the buyer or the seller, there is a built-in incentive to propose a fair price. In theory, this ensures honesty and discourages “lowball” offers, since the initiating party risks having the same price applied to their own interest.
What Is the Timeline of a Russian Roulette Provision?
The buy-sell clause generally outlines how the process unfolds:
1. Written notice: The initiating party must send written notice of intent, often describing the circumstances that provoked the buy-sell and stating the buy-out/sell-out price.
2. Response period: The receiving party typically has a set timeframe, often thirty days, to respond with a written notice indicating whether it will buy out the initiating party or agree to sell its own interest.
3. Closing date: The clause specifies a closing deadline by which the buying party must wire the full purchase price. In the interim, the buyer may need to gather funds, consolidate assets, or restructure the company in preparation for the transfer.
When Should a Russian Roulette Provision be Used?
Because of the risks involved, Russian Roulette provisions are not suitable for every business relationship. They may be most effective when partners are on relatively equal financial footing and seek a decisive way to move forward. In other situations, alternatives such as buy-sell agreements based on independent valuations or dispute resolution methods like mediation or arbitration may offer fairer and less disruptive outcomes.
How Can RR&A Help?
Ultimately, Russian Roulette provisions carry both risk and opportunity. For some, they offer a practical solution that prevents deadlock from crippling the business; for others, they can give one partner disproportionate leverage. The key is thoughtful drafting and a realistic assessment of each party’s position. However, if you find yourself on the other end of a buy-sell clause, RR&A can help. The RR&A team can guide you through every aspect of a Russian Roulette clause, ensuring the process is transparent, efficient, and stress-free. For more information on buy-sell and Russian Roulette provisions and how they may impact your business, reach out to RR&A.
Disclaimer: The information and material on this website is general information about our practice and firm. This information does not offer specific legal advice and the use of this information does not create an attorney-client relationship with RR&A or any of its attorneys. The information on this website should not be used for legal advice, and persons should not act upon the information on this website without engaging professional legal counsel.
