What is the difference between tag along and drag along rights?

What is the difference between tag along and drag along rights?

A drag-along provision enables a majority shareholder to force a minority shareholder to join in the sale of a company. Tag-along rights do not require a minority shareholder to sell; it simply gives them the option to tag-along and sell their shares along with the majority shareholder.

Which is better drag along or tag along?

Whereas a ‘tag along’ clause provides protection to small investors, a ‘drag along’ provision protects the interests of the major shareholder(s). A ‘drag along’ clause allows a large shareholder (or group of shareholders) to ‘drag’ the other shareholders into a joint sale of the entire venture.

What is drag along in term sheet?

Drag-along rights enable majority shareholders to force minority shareholders into a sale, provided that minority shareholders are offered the same exact terms as the majority ones. These are usually accompanied by tag-along rights, which protect the interest of minority shareholders in an exit.

What is a drag along clause in a shareholders agreement?

In practice, drag-along provisions give majority shareholders who wish to sell their shares to an unrelated third party the right to force the remaining shareholders to sell their shares on the same terms.

What is tag along clause?

Tag-along rights are pre-negotiated rights that a minority shareholder includes in their initial issuance of a company’s stock. These rights allow a minority shareholder to sell their share if a majority shareholder is negotiating a sale for their stake.

Are tag along rights standard?

Tag-along rights allow minority holders to also join in this premium and be able to sell their shares at this higher price in any sale between a majority and a third party. Because tag-along rights are rights and not obligations, minority shareholders may or may not choose to exercise them.

What is a full tag along right?

A tag along rights clause allows minor shareholders to ‘tag along’ with a larger shareholder or group of shareholders if they find a buyer of their shares.

What is a tag along agreement?

Tag-along rights also referred to as “co-sale rights,” are contractual obligations used to protect a minority shareholder, usually in a venture capital deal. If a majority shareholder sells his stake, it gives the minority shareholder the right to join the transaction and sell their minority stake in the company.

What is the purpose of a tag along right?