Articles of Association: tag-along/drag-along
Standard Article comprising tag-along and drag-along rights
Background
What are tag-along rights?
Tag-along rights are protective rights for a minority shareholder. If the majority shareholders sell their controlling interest in a company to a third party, a minority shareholder in a private limited company has no right to sell its shares at the same time unless it has the benefit of tag-along rights.
Tag-along rights act as a restriction on the sale by the majority shareholders. As usually drafted, the majority shareholders are prohibited from selling their shares unless the buyer has first also offered to purchase the minority shareholder’s shares at the same price per share at which the majority shareholders are selling their shares.
The tag-along rights are elective rights of the minority shareholders – they can choose whether or not to sell their shares at the same time. However, the majority shareholders will also be concerned that a buyer may only acquire their shares if the buyer is also able to buy the shares of any minority shareholder. To achieve this, the majority shareholders will usually include drag-along rights in the Articles of Association to ensure that their sale is not frustrated by a buyer not being able to acquire the whole company.
What are drag-along rights?
Drag-along rights are 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 sale buyer and at the same price per share.
About this document
This document comprises standard paragraphs for inclusion in the Articles of Association of a private limited company containing both tag-along and drag-along rights.
Document features
- tag-along rights for the minority shareholder(s)
- drag-along rights for the majority shareholder(s)
Explanatory guidance
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