Glossary
Drag-along rights
A provision, usually in a shareholders' agreement or the articles, allowing holders of a defined majority to require the remaining shareholders to join a sale of the company on the same terms.
In plain English
Buyers generally want to acquire the whole company. If a small shareholder refuses to sell, the deal can be blocked or complicated. Drag-along rights solve this by letting the majority bring everyone along once a sale is agreed.
The mirror image is tag-along rights, which protect minority shareholders by letting them join a sale on the same terms.
Why it matters
Founders with minority shareholders, option holders or investors should check whether drag-along rights exist and how they work before starting a sale. Buyers will ask.
What to watch for
- Check the threshold required to trigger the drag and the notice required.
- Option holders and employee shareholders need to be considered.
- If the rights do not exist, agreement from every shareholder will be needed.
Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.