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Formations remain on overwatch until they either shoot, or they undertake a new action in the following turn. Note that this means that a unit can go into overwatch on one turn, and not shoot until the following turn. Shooting in the following turn counts as your action for that turn, and will stop the formation taking an action later on. If the formation does not shoot in the following turn then it may take an action instead of shooting.
It is mandatory to activate every formation that is on the table although the overwatch rule does allow a formation to stay on overwatch if it has not fired.
Your formation is allowed to remain on overwatch if it has not fired.
In the following turn it is still allowed to remain on overwatch if it has not fired
or you can take a different action to replace the overwatch action.
There are a few stipulations that stop you from remaining on overwatch into the next turn, these are covered in the FAQ
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1.10 Overwatch
Q. Can a formation on overwatch use its overwatch fire when it is not a legal formation?
A. Yes, the requirement to be a legal formation is only when the formation is taking an overwatch action. However, it could not choose to remain on overwatch as it would have to move back into a legal formation.
Q. Can a formation on overwatch use its overwatch fire when it is in the zone of control of an enemy formation.
A. Yes, as it is not taking an action when shooting while on overwatch. However, it could not choose to remain on overwatch as it would have to charge the enemy or leave its zone of control.