No-Shop Clause

What is a 'No-Shop Clause'

A no-shop clause is a clause in an agreement between a seller and a potential buyer that bars the seller from soliciting a purchase proposal from any other party. In other words, the seller cannot "shop" the business or asset around once a letter of intent or agreement in principle is entered into between the seller and the potential buyer. A no-shop clause is generally only in effect for a finite period.

BREAKING DOWN 'No-Shop Clause'

A no-shop clause is very useful from the potential buyer's point of view, because it can prevent the seller of the business or asset from soliciting other offers, which may lead to a higher purchase price or bidding war if there are multiple interested parties. On the other hand, the seller may not want an unduly long no-shop period, especially if there is a risk that the potential purchaser will walk away from the deal during or upon completion of due diligence.