Full Definition
Drag-along rights allow majority shareholders (or a specified percentage of shareholders) to force minority shareholders to participate in a sale of the company on the same terms. This provision ensures that a small group of shareholders cannot block an otherwise favorable acquisition.
How Drag-Along Works
- Triggered when a specified majority (typically 50-67%+) approves a sale
- All shareholders must sell their shares on the same terms
- Prevents minority shareholders from holding up deals
- Standard in most VC investment agreements
Drag-Along vs Tag-Along
Drag-along forces minorities to sell. Tag-along (co-sale rights) protects minorities by giving them the right to join a sale on the same terms. Both are standard investor protections.
Real-World Example
When 70% of shareholders approve a $200M acquisition offer, drag-along rights compel the remaining 30% to sell their shares at the same price and terms.
Related Terms
A provision allowing minority shareholders to sell their shares alongside majority shareholders in a sale.
A non-binding document outlining the key terms and conditions of a proposed investment deal.
A planned approach for founders and investors to realize returns on their investment in a company.
A class of shares with special rights and preferences over common stock, typically held by investors.
A group of individuals elected to represent shareholders and oversee the management of a company.
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