The investor’s field guide · D
Drag-along and tag-along
Shareholder provisions governing when holders may be required or entitled to participate in a sale.
Explained by the editorial team
Drag-along provisions may allow a specified majority to require other shareholders to sell when an agreed sale is approved. Tag-along provisions may allow minority holders to join a sale by specified shareholders. These mechanisms address different risks and are not interchangeable.
An illustrative situation
A buyer wants all shares in a private company. A valid drag mechanism may prevent a small minority blocking the transaction. Conversely, a tag provision may stop a controlling shareholder selling alone while leaving others with a new owner and no opportunity to exit.
What to examine
Read thresholds, notice requirements, price allocation and which transactions trigger the provisions. Different share classes may not receive identical economic outcomes even in the same sale. Check what warranties a dragged holder must give and whether liability is limited appropriately. Company documents, contracts and applicable law all matter. These rights facilitate specified processes; they do not guarantee a buyer or a satisfactory sale price.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.