Glossary / Drag-Along Rights

Drag-Along Rights

Drag-along rights, also known as drag rights or drag-along provisions, are a contractual provision that allows majority shareholders or a controlling group of shareholders to force minority shareholders to sell their shares in the event of a sale or merger of the company. These rights are typically included in shareholder agreements or operating agreements and are designed to protect the interests of majority shareholders by ensuring that they can sell the company as a whole without being hindered by minority shareholders who may not want to sell. Under drag-along rights, if a majority shareholder receives an offer to sell the company, they have the right to require minority shareholders to sell their shares on the same terms and conditions as the majority shareholder. This means that minority shareholders are "dragged along" in the sale and must sell their shares even if they do not want to. Drag-along rights are often seen as a way to provide liquidity to minority shareholders who may not have the same ability to sell their shares as easily as majority shareholders. It also helps to streamline the sale process by ensuring that all shareholders are on board with the sale. However, drag-along rights can also be seen as a potential disadvantage for minority shareholders, as they may be forced to sell their shares at a price or on terms that they do not agree with. Therefore, it is important for minority shareholders to carefully review and negotiate the terms of drag-along provisions to protect their interests.