Drag-Along & Tag-Along Rights
Written by Harry Prabandham
Curated by Rubric Financial
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What Drag-Along Rights Do
- Drag-along rights allow majority shareholders (typically requiring 50-67% approval) to force all other shareholders to participate in a sale of the company on the same terms
- Without drag-along, a minority shareholder could block an acquisition by refusing to sell, making the company unsellable even if the vast majority of shareholders approve
- Drag-along is essential for clean exits: acquirers want 100% of the company, and holdout shareholders create deal risk and legal complications
- The threshold for triggering drag-along (what percentage must approve) is a key negotiation point: founders want a higher bar, investors want a lower one
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About the author
Harry PrabandhamFounder & CEO
Founder and CEO of StartupCFO. MBA from Wharton, MS in Computer Science, and decades of experience building and advising venture-backed startups.
More articles by Harry →Related tools and reading
Pro Rata Rights
Investor's contractual right to participate in future rounds at their existing ownership percentage to avoid dilution.
GlossaryDrag-Along Rights
Allows majority shareholders to force minority holders to sell their shares in an acquisition.
GlossaryTag-Along Rights
Allows minority shareholders to join a sale on the same terms as majority shareholders.
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