Drag-Along Right

A drag-along right (co-sale obligation) entitles one or more majority shareholders to force the remaining shareholders to sell their shares on the same terms when the company is sold. If a majority shareholder finds a buyer for the entire company, minority shareholders cannot oppose the sale and must join in.

The economic purpose is clear: a buyer usually wants to acquire 100 percent of the shares rather than negotiate with remaining minority holders. Without a drag-along clause, individual minority shareholders could block a full sale or demand an unreasonable premium. For investors in private equity and venture capital, this clause is therefore a standard building block of the shareholders' agreement.

The drag-along right is usually tied to thresholds and flanked by protective mechanisms for the minority, such as a minimum price. Its counterpart is the tag-along right. We support its structuring as part of the company sale.