Tag Along Rights

Tag along rights assure a minority shareholder in a company that if a majority shareholder negotiates to sell his or her shares to an outside third party, that minority equity holder will be allowed to join the transaction and also sell his or her shares on the same terms and conditions. These rights protect minority shareholders. The sale at issue is typically an acquisition of the company. The tag along rights give the minority shareholders the security of knowing that the majority won’t sell out their interest and leave the minority stuck in the company with a new majority shareholder that they never intended, or planned on, doing business with. After the right is triggered, there is a window for a period of time within which the minority shareholders can exercise their tag along rights. However, if the window closes and the minority shareholders do not exercise their rights within that timeframe, then the right ceases. A similar concept to tag along rights is the concept of drag along rights, which ensure that the majority shareholder in a company can force the minority shareholders to have their equity bought out on the same terms and conditions that the majority shareholder negotiates with an outside third party.