Tag Along Clause In Shareholders Agreement

The purpose of a Tag Along provision is to ensure that small shareholders are not left behind if a large shareholder decides to leave the company. (For more information on minority shareholder protection, click here.) A shareholders` agreement normally prohibits a shareholder from selling his shares without giving the other shareholders a reasonable opportunity to buy them. These provisions are called “preferential duties”. The content of a shareholders` agreement must be the subject of considerable reflection. These provisions can have a significant impact on shareholders. The decision to include “Tag-along” or “Drag along” rights in the shareholders` agreement can have a big influence on the sale of your business. Tag Along rights are pre-negotiated rights that a minority shareholder includes in their first issue of shares in a company. These rights allow a minority shareholder to sell his share when a majority shareholder negotiates a sale for his stake. Tag Along rights are widely used in startups and other private companies with high upside potential. These two clauses give the minor the right to obtain the same price and conditions as any other seller. Although towing rights are highly privileged over majority shareholders by avoiding them being “tied” to the company, these types of clauses also ensure that minority shareholders are treated in the same way as the majority shareholder.

Minority shareholders will thus benefit from the sale of a company that has organized a majority shareholder.