Table of Contents
- 1 What are drag along and tag along provisions?
- 2 What is a tag along transfer?
- 3 What are drag along and tag-along rights in a start up who benefits from these and why?
- 4 Why is drag-along important?
- 5 How does drag along work?
- 6 Where are drag along rights?
- 7 Can you have drag-along and tag along rights?
- 8 How common are drag-along rights?
- 9 What is a tag along clause?
- 10 What is tag along provision?
What are drag along and tag along provisions?
The drag along clause requires the minor shareholder to sell their shares. The tag along clause requires the minor shareholder to be allowed to join in on a sale. Both clauses are designed to give the minor shareholder the rights to receive the same price, terms and conditions as any other seller.
What is a tag along transfer?
Tag-along rights also referred to as “co-sale rights,” are contractual obligations used to protect a minority shareholder, usually in a venture capital deal. If a majority shareholder sells his stake, it gives the minority shareholder the right to join the transaction and sell their minority stake in the company.
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.
What are drag along and tag-along rights in a start up who benefits from these and why?
Key takeaways. Drag-along rights and tag-along rights are important forms of investment realisation in a shareholders agreement. Drag-along rights favour the majority shareholder while tag-along rights are more beneficial to the minority shareholder.
Why is drag-along important?
The drag-along provision itself is important to the sale of many companies because buyers are often looking for complete control of a company. Drag-along rights help to eliminate the current minority owners and sell 100\% of a company’s securities to a potential buyer.
How does drag-along work?
A drag along right allows a majority of shareholders to force minority shareholders to join the majority in a sale of the whole of the company to an unrelated third party. The expression “drag along” comes from the idea that the minority shareholders are being forced against their will to sell their shares.
How does drag along work?
Where are drag along rights?
Drag-along rights can be instituted through capital fundraising or during merger and acquisition negotiations. If, for example, a technology startup opens a Series A investment round, it does so to sell ownership of the company to a venture capital firm in return for capital infusion.
Are tag along rights common?
Tag-along rights are a common contract provision, but they’re generally not offered automatically to minority shareholders.
Can you have drag-along and tag along rights?
A drag-along provision enables a majority shareholder to force a minority shareholder to join in the sale of a company. Tag-along rights allow shareholders to “tag-along” with the majority sale and sell their stock when another shareholder receives a sale offer.
How common are drag-along rights?
Generally, this will range from about a 51\% to about 90\% majority, subject to the agreement between the shareholders.
What is the definition of tag along?
Definition of ‘tag along’. tag along. phrasal verb. If someone goes somewhere and you tag along, you go with them, especially when they have not asked you to. I let him tag along because he had not been too well recently. [VERB PARTICLE] She seems quite happy to tag along with them.
What is a tag along clause?
Tag Along Clause. This Tag Along Clause is for use in Shareholders’ Agreements where one of the parties is a minority shareholder. It is designed to protect the position of the minority shareholder where the majority shareholder decides to sell a defined percentage of shares in the company.
What is tag along provision?
tag along provision. Investment agreement provision that gives a stockholders (shareholders) the right to liquidate a part or all of his or her investment at the time the firm is raising additional capital. He or she is paid usually from the newly acquired funds. Also called tag along right or take along provision.
What is drag along provision?
The drag-along or bring-along provision forces a stockholder to vote in favor of a sale of company if a certain threshold of stockholders and/or the board of directors approve the transaction. Below is a typical term sheet provision.