Diligence & Terms

Drag-Along / Tag-Along

Drag forces minorities to sell; tag lets them join

What it is

These are two mirror-image share-transfer rights. A drag-along lets a majority (often the investors or founders) FORCE minority shareholders to join a sale of the company, so a buyer can acquire 100%. A tag-along lets minority shareholders ELECT to join a sale on the same terms when a major holder sells, so they are not left behind.

Why it matters

Drag-along makes a clean exit possible by preventing a small holdout from blocking an acquisition. Tag-along protects small holders from being stranded while big holders cash out. Together they govern how share sales play out.

Resources

NVCA Voting Agreement and ROFR & Co-Sale Agreement

nvca.org