Articles of Association: tag-along/drag-along

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Tag-along and drag-along rights, in the form of standalone paragraphs to be included in the company’s Articles of Association.

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When do I use this document?

What are the key features?

  • tag-along rights process, including offer to minority shareholders to sell their shares to the buyer of a controlling interest in the company
  • drag-along rights process, including service of a compulsory sale notice and completion of the dragged shareholders’ shares to the buyer
  • definitions to be included in the Articles of Association 

What else do I need to know?

Tag-along rights serve as protective shareholder rights for minority shareholders in a private limited company.  Without them, minority shareholders have no ability to sell their shares if the controlling shareholder(s) sell their majority stake to a third party.

Tag-along rights operate as a restriction on the sale by controlling shareholders.  As typically drafted, the majority shareholders cannot sell their shares unless the buyer extends an offer to purchase the minority shares at the same price per share.

The tag-along rights are elective rights of the minority shareholders – they can choose whether or not to sell their shares.  Nevertheless, majority shareholders are concerned that a buyer may only acquire their shares if the buyer can also purchase shares held by any minority shareholder.  To achieve this, majority shareholders usually include drag-along rights in the Articles of Association to ensure that their sale is not frustrated by a buyer’s inability to acquire the entire company.

Drag-along rights serve as protective rights for the majority shareholder(s) in a private limited company.  They may not be able to find a buyer for their controlling interest in the company unless the buyer can also acquire shares held by any minority shareholder(s).

Drag-along rights usually operate by providing that, on a proposed sale by the majority shareholder(s), they can also require that any minority shareholder sells its shares to the same buyer at the same price per share.

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