Drag-Along Right
AdvancedA drag-along right is a provision in a shareholder agreement that allows majority shareholders who agree to sell the company to require minority shareholders to join the sale on the same terms.
Buyers often want to acquire 100% of a company. If a few minority shareholders refuse to sell, they could block or complicate the deal. A drag-along right prevents this.
For example, the founders and investors who together own 85% of a start-up agree to sell it to a larger company for 40 per share. Under a drag-along right, the remaining 15% of shareholders must also sell their shares at 40, allowing the buyer to acquire the whole company.
Drag-along rights usually require that minority shareholders receive the same price and terms as the majority, and they may only be triggered if a set percentage of shareholders or certain investor classes approve the sale.
They are common in venture capital and private equity investments, where investors want to be sure they can achieve a full exit. Minority shareholders should check the thresholds and protections, since drag-along rights can force them to sell even if they would prefer not to.
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