Tag-Along & Drag-Along Rights

Definition

Shareholder protection mechanisms typically found in shareholder agreements and investment documents. Tag-along rights (co-sale rights) allow minority shareholders to join a sale initiated by majority shareholders on the same terms and conditions, preventing the majority from selling to a buyer while leaving the minority locked in with an unknown new partner. Drag-along rights allow majority shareholders to force minority shareholders to sell their shares on the same terms when the majority has agreed a sale, enabling clean-exit transactions. Both mechanisms are critical in PE-backed companies and joint ventures.