“DRAG ALONG” AND “TAG ALONG” RIGHTS
Those are two types of clauses that we advice to include in the company bylaws or in a separated agreement among its shareholders, in order to protect some of them in case of a future shares’ selling.
The ‘drag along’ clause allows the main shareholders to obligate the minority shareholders to sell their shares in the company, to allow the full sell of it to another purchaser.
The ‘tag along’ clause allows the minority shareholder to voluntarely adhere himself to the sell to be executed by the majority shareholders. Nevertheless, in this cause it could be impossible for the new purchaser to acquire 100% of the company’s shares, in case the minority shareholder did not executed his rights to tag himself to the operation.
Both clauses have become crucial in start-up companies, as most of its investors look for an exponential growth in a short period of time, and a fast sell as soon as possible. Nowadays you should not create a startup without considering one or both of those clauses.