What is the purpose of a tag along right?

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.

Are drag-along rights enforceable?

Drag-along rights are enforceable if the drag-along provision is drafted properly and contained within a valid and enforceable contract, and if the transaction is executed according to the terms of the provision.

Who benefits from drag-along rights?

In the event of a sale of a controlling interest by the shareholder(s) holding a specified majority of shares, a drag-along right enables the selling majority shareholder to procure an exit by forcing the remaining minority shareholders to similarly sell their shares to a bona fide third party purchaser on broadly the ...

How do drag-along rights work?

A drag-along right is a provision or clause in an agreement that enables a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority shareholder the same price, terms, and conditions as any other seller.

Can you have both drag-along and tag-along rights?

While the decision to drag or tag can vary from company to company, some basic principles apply to both types of rights. For example, co-owners generally need to give notice before dragging or tagging. If a majority owner doesn't give notice of the sale to his co-owners, then his dragging or tagging attempt could fail.

Tag-Along and Drag-Along Rights

What does tag along mean?

: to follow another's lead especially in going from one place to another.

How do you use tag along?

How common are drag along rights?

The type of majority required to invoke a drag along depends on the agreed threshold. Generally, this will range from about a 51% to about 90% majority, subject to the agreement between the shareholders.

Can you force a minority shareholder to sell their shares?

If we can't come to an agreement, there's no simple way to compel the minority shareholder to sell. In general, the majority shareholder will need to address the minority's reasons for refusing to sell, convincing the minority to accept a fair value for their shares.

Are drag along rights standard?

In most cases, the controlling majority, or a minimum of 51 percent are allowed to hold a vote to trigger a drag-along the sale. However, 66 percent may be the ideal rate depending on the company. Voters are usually preferred stockholders. Common stockholders might also be included, but this is rarer.

What is pro rata right?

A pro rata right is a right that is given to an investor that allows them to maintain their initial level of ownership percentage during later financing rounds.

What is a shotgun deal?

Related Content. A shotgun clause is a mechanism of last resort where shareholders cannot settle a dispute by discussion and negotiation. It results in a forced sale of shares. Under the clause, one party, P1, offers either to buy the shares of the other party, P2, or to sell P1's own shares to P2 at a specified price.

How do you enforce drag along rights?

The first remedy that majority owners can take is to request minority owners to grant an irrevocable proxy. If given, this allows majority owners to act on behalf of minority owners in any vote or action required to effect the sale. It includes signing documents on behalf of the minority owners.

WHAT ARE LLC drag along rights?

A standard clause in many LLC agreements, a drag-along provision gives a majority member wanting to sell to an unrelated third party all or a substantial percentage of its membership interests in the company the right to force the other members to also sell all or a portion of their membership interests to the third ...

What is drag along rights in shareholders agreement?

Drag Along provision in shareholders' agreement (Right to Majority Shareholders) A drag along provision allows the majority shareholder(s) to require the minority shareholder(s) to sell their shares. The aim of drag along rights is to provide liquidity, flexibility and an easy exit route for a majority shareholder.

Can a 51 owner fire a 49 owner?

Creating a pay or profit-sharing arrangement. No owner can be fired or demoted without good cause. Outlining the responsibilities of both parties. The majority can't sell the business unless it's to the minority shareholder.

Can you kick out a shareholder?

If you want to remove a shareholder, you first must decide if the shareholder is leaving the company voluntarily or involuntarily. For involuntary removals, the shareholder will usually need to have violated the shareholders agreement or company bylaws before they can be forced out of the company.

Can a shareholder refuse to sell their share?

The answer is usually no, but there are vital exceptions.

Shareholders have an ownership interest in the company whose stock they own, and companies can't generally take away that ownership.

What is a pay to play provision?

A "Pay to Play" provision is a requirement for an existing investor to participate in a subsequent investment round, especially a Down Round.

What's another word for tag along?

Similar words for tag along:

accompany (verb) connect (verb) follow (verb) lag behind, follow (verb)

Is tagalong a real word?

tagalong noun [C] (EXTRA PERSON)

someone who goes somewhere or does something with another person or other people, especially when he or she has not been invited: I was only meant to be a tagalong when my wife and her friends went skiing.

Why don't you tag along Meaning?

informal. to go somewhere with a person or group, usually when they have not asked you to go with them: I don't know her, she just tagged along with us. Thesaurus: synonyms, antonyms, and examples. to follow someone or something.

What is the difference between tag along and drag along rights?

Tag-along or co-sale rights are essentially the opposite of drag-along rights. Whereas tag-along rights give minority shareholders negotiating rights in the event of a sale, drag-along rights force the minority shareholders to accept whatever deal is negotiated by majority shareholders.

Is tag along negative?

To "tag along" is to join in. It can be used both in a positive or negative context.

Would you mind if I tag along Meaning?

tag along (behind/with somebody)

to go somewhere with someone, especially when you have not been asked or invited Do you mind if I tag along with you tonight?