Clauses providing for drag along and tag along rights, are becoming increasingly common in Shareholders’ Agreements. What are these rights and what purpose do they serve?

A Shareholders’ Agreement is a private agreement between the shareholders of a company which regulates their relationship, the rights and obligations towards each other and sets the grounds in the event of a deadlock. The shareholders are not legally required but recommended to enter into such an agreement upon incorporation of the company.

Drag Along Right

A drag along right allows the majority shareholders in a Company, who wish to sell their shares to a potential buyer, to ‘drag’ the remaining minority shareholders in the potential sale, on broadly the same terms and price for the shares, and enable the purchasing of 100% of the shareholding to the buyer. 

Tag Along Right

Where the majority shareholders in a Company wish to sell their shares to a potential buyer, a tag along right allows the minority shareholders to participate in the sale, at the same time for the same terms and price with the majority shareholders, for the shares. 

The tag along right aims to protect minority shareholders with a little control over the company from being left behind with limited options to sell their shares later. 

Should you wish to find out more, contact our team.