Drag-Along Right
A clause that allows majority shareholders to compel minority shareholders to join in the sale of the company, ensuring that a sale can proceed without minority obstruction.
Implications
A contractual clause that allows majority shareholders to force minority shareholders to join in the sale of a company, ensuring that a deal can go through without holdouts, often used in venture capital and private equity agreements.
Example
Example: In a startup acquisition, the majority investors exercise their drag-along rights to compel all shareholders to sell their shares to the acquiring company, facilitating a smooth transaction.
Related Terms
Different from tag-along rights, which protect minority shareholders by allowing them to join a sale on the same terms, drag-along rights ensure that majority decisions are not blocked by minority shareholders.
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