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| 7 October 2017

Drag-Along Rights

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Drag-Along Rights allow a majority of the Shareholders to approve a sale of their shares in the company and to force the remaining minority of the Shareholders to also vote to approve such sale (i.e. the majority Shareholders “drag along” the minority Shareholders in a sale scenario). Investors (usually the majority Shareholders) want to receive the full value for their Shares and this may not be possible unless they can sell all the Shares in the company to the buyer. Founders (usually the minority Shareholders) may be reluctant to agree to these rights because investors (the majority Shareholders) normally have a Liquidation Preference and may negotiate the terms of a sale which benefit those investors and not the minority Shareholders. So Drag-Along Rights typically include some protection against abuse for minority Shareholders (e.g. minority Shareholders will sell their shares on the same terms, including price, as the majority Shareholders).

Tag-Along Rights work in a similar but opposing manner.