What do drag-along rights mean?
A drag-along right is a provision or clause in an agreement that enables a majority shareholder to force a minority shareholder to join in the sale of a company.
What is the difference between tag along and drag-along rights?
Tag-along or co-sale rights are essentially the opposite of drag-along rights. Whereas tag-along rights give minority shareholders negotiating rights in the event of a sale, drag-along rights force the minority shareholders to accept whatever deal is negotiated by majority shareholders.
Can a minority shareholder have drag-along rights?
Tag along rights are also known as ‘co-sale rights’ are simply those rights which mostly benefit the minority shareholders. When the promoters or Majority shareholders transfer their shares to incoming investors, the existing minority shareholders can tag along.
What is a drag along clause?
A drag along clause enables the majority shareholders of a company (typically over 75%) to compel the minority shareholders to accept an offer from a third party to purchase the whole company.
Where is a drag along right found?
A drag along right allows a majority shareholder (ie usually a shareholder holding more than 50% of shares in a company that have voting rights attached) of a company to force the remaining minority shareholders (ie usually a shareholder holding less than 50% of shares in a company that have voting rights attached) to …
What is drag along rights in law?
A drag-along right is a right that enables a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority shareholder the same price and terms and conditions as any other seller. Drag-along rights are designed to protect the majority shareholder.
What does drag along mean in a contract?
A drag-along right is a provision or clause in an agreement that enables a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority shareholder the same price, terms, and conditions as any other seller.
What are drag-along rights in shareholder rights?
What Are Drag-Along Rights? A drag-along right is a provision or clause in an agreement that enables a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority shareholder the same price, terms, and conditions as any other seller.
What are drag along rights in a structured merger?
In a structured merger, the minority shareholder agrees to vote in favor of the merger. Drag along rights are often written in a term sheet, which outlines the terms by which a venture capitalist or investor invests in a company.