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Tag-Along Rights
Rights protecting minority shareholders by allowing them to join when majority shareholders sell their shares.
Formula
Tag-along mechanics:
- Trigger: Sale above threshold (often any sale to third party)
- Right: Participate pro-rata in the sale
- Terms: Same price and conditions as triggering sale
Definition
What are Tag-Along Rights?
Tag-along (co-sale) rights let minority shareholders sell their shares alongside majority shareholders in a transaction. If founders sell, investors can tag along at the same price and terms.
Protection for Investors
Tag-alongs prevent founders from selling their shares in a sweet deal while leaving investors stuck with illiquid stock. It ensures everyone can exit together.
How Tag-Alongs Work
When a shareholder sells above a threshold, they must offer other shareholders the chance to sell proportionally at the same terms.
Example
Founder wants to sell 10% of their shares at $5/share.
Investors have tag-along rights covering their 30% stake.
Buyer wants 10% of company.
Result: Founder can sell 7% and investors can sell 3% pro-rata.
All at $5/share on identical terms.
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