Tag-along right
A tag-along right lets a minority shareholder join a sale that a majority shareholder is making, selling their own shares to the same buyer on the same price and terms instead of being left behind as a minority owner in whatever remains of the company.
Tag-along rights protect smaller shareholders from a scenario where a controlling shareholder sells out and leaves them holding shares in a company now controlled by someone new, on terms they never agreed to. The right gives the minority shareholder a choice, not an obligation, to sell alongside the majority.
How it works in practice
- A triggering event, usually the majority shareholder agreeing to sell above a certain percentage of shares
- Notice to the other shareholders describing the proposed sale terms
- A window in which minority shareholders can elect to include their shares in the same sale
Tag-along versus drag-along
The two rights work in opposite directions and are often included in the same shareholder agreement. A drag-along right lets the majority force the minority to sell. A tag-along right lets the minority choose to join a sale the majority is already making. Together they cover both sides of what happens when one group of shareholders wants out.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryCorporate Law
- 02Treadstone LawLegal commentaryMergers & Acquisitions
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