What Does
Drag-along Rights Mean?
Drag-along rights are provisions that make it mandatory for a minority shareholder to agree and join the majority shareholders in the sale of a firm. In essence, the minority shareholder is “dragged along” in the sale process by the majority shareholders. This remains the case so long as the majority shareholders offer the minority shareholder the same terms and conditions as would any other seller.
Drag-along right would normally form a section of a buy-sell agreement or unanimous shareholders’ agreement between the stockholders of a company.
Divestopedia Explains Drag-along Rights
Drag-along rights are used in the sale process because when purchasing a firm, many organizations want the whole firm and not just the majority of shares. Therefore, if a minority shareholder were unwilling to sell, the purchasing party would be unable to gain the entire firm. These rights help protect the majority shareholders from these potentially sale-adverse minority shareholders.