BMBY is a mechanism that separate shareholders in case of disagreements and deadlocks. Mechanisms such as BMBY can be prescribed in contracts between shareholders like founder’s agreement and cooperation agreement etc. According to BMBY mechanism, one of the founders (A) can make an offer on his partner’s (B) shares. Founder B can either sell his shares to founder A or buy Founder’s A shares. This mechanism, in a way, obligates founder A to offer a reasonable price for the shares in the first place, because undervalued or overvalued price can lead to losses. However, BMBY mechanism will be ineffective and can lead to shareholders exploitation in case of unsymmetrical information or uunequal economic status between shareholders.
What is a “Buy Me Buy You” mechanism?
About the Author: Jouman Abbud
Third year Law & Accounting student at the IDC Herzliya. Dreams of becoming a leading lawyer and leaving a mark on the industry