What is the meaning of tag along right?
Table of Contents
What is the meaning of 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.
What is a drag and tag clause?
The drag along clause requires the minor shareholder to sell their shares. The tag along clause requires the minor shareholder to be allowed to join in on a sale. Both clauses are designed to give the minor shareholder the rights to receive the same price, terms and conditions as any other seller.
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.
What is a co-sale?
Co-sale rights give investors the right to join in a transaction when the founders sell their stock to a third-party. Co-sale rights, also called tag-along rights, allow investors to sell their shares on the same terms as the founders.
Why Tag Along rights are important?
In short, agreeing on a tag-along right prevents the situation in which a majority shareholder gets a profitable exit whereas minority shareholders sit on their minority stakes without being able to sell them.
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.
Can you have both drag along and tag along?
Drag-along rights and Tag-along rights are clauses commonly included into shareholder agreements. These are often recommended to be inserted, alongside reserve matters, rights of first refusal, rights of first offer, put and get options, non-dilution clauses.
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?
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’s another word for tag along?
Similar words for tag along: accompany (verb) connect (verb) follow (verb) lag behind, follow (verb)
Who benefits from drag-along rights?
Benefits of Drag-Along Rights for Minority Shareholders This provides advance notice of the corporate action mandated for the minority shareholder. It also provides communication on the price, terms, and conditions that will apply to the shares held by the minority shareholders.
Which is better drag along or tag along?
Key Takeaways Drag-along rights eliminate the current minority shareholders through the sale of 100% of a company’s securities to a potential buyer. Tag-along rights differ from drag-along rights since tag-along rights offer the minority shareholders the option to sell but do not mandate an obligation.
Can minority shareholders have drag-along rights?
In instances when there is a bidder who would like to buy the entire company, and the majority shareholder(s) holding more than 50% of the company agree to sell their shares, the majority shareholder(s) can “drag along” the remaining minority shareholder(s) and require the minority shareholder(s) to sell their shares …
Can you have both tag along and drag-along rights?
Can you have both drag-along and tag along?
