Drag-along rights let specified majority owners require minority owners to participate in a sale under defined conditions.
They are used to make a sale of the whole company easier to complete.
Why drag-along rights matter
Buyers often want all ownership interests transferred at closing. Drag-along rights can prevent a minority owner from blocking a sale that meets agreed conditions.
The provision usually defines approval thresholds, notice, sale terms, and protections for minority owners.
Where drag-along rights appear
Drag-along rights appear in shareholder agreements, operating agreements, investor rights agreements, venture financing documents, and buy-sell agreements.
They are common in startups and closely held companies with multiple owners.
How it differs from nearby terms
Drag-along rights let majority owners pull minority owners into a sale. Tag-along rights let minority owners join a sale by majority owners.
Voting rights define approval power, while drag-along rights define sale participation obligations.
Practical example
Investors holding the required percentage approve a company sale. The drag-along clause requires smaller shareholders to sell their shares on the same terms.
Related Terms
Quick check
Question: Do drag-along rights usually help complete a sale approved by specified owners?
Answer: Yes. They can require other owners to join the sale under defined terms.