Drag-Along Rights
Rights that enable majority shareholders to force minority shareholders to join in the sale of a company.
Definition
Drag-along rights are contractual provisions that give majority shareholders the power to force minority shareholders to join in the sale of a company. These rights ensure that minority shareholders cannot block a sale that the majority wants to proceed with, facilitating clean exits and acquisitions.
How It Works
Majority Decision
Majority shareholders decide to sell
Notice to Minorities
Minority shareholders are notified
Same Terms
Minorities receive same price per share
Benefits
- Prevents minority shareholders from blocking beneficial sales
- Ensures clean title transfer to acquirers
- Protects majority shareholders' exit rights
- Simplifies acquisition negotiations
Real-World Example
Startup Acquisition: Majority investors approve $100M sale
When 60% of shareholders approve a sale, drag-along rights force the remaining 40% to also sell their shares at the same $10 per share price.