Tag-Along Right
AdvancedA tag-along right is a provision in a shareholder agreement that allows minority shareholders to join a sale when a majority shareholder sells its stake, selling their shares on the same terms.
Tag-along rights protect minority shareholders. Without them, a majority shareholder could sell its controlling stake to a new owner at an attractive price, leaving minority shareholders stuck with a buyer they did not choose and no way to sell.
For example, a founder owning 60% of a company agrees to sell their stake to a buyer for 50 per share. A minority investor with a tag-along right can require the buyer to purchase their shares too, at the same price of 50 per share.
Tag-along rights are also called co-sale rights. They are common in venture capital, private equity and joint ventures, and are often paired with drag-along rights, which work in the opposite direction by allowing the majority to force minority shareholders to sell.
The provisions usually specify when the right applies, such as only on sales above a certain size, and how shares are allocated if the buyer wants to buy only a limited number.
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