Drag-Along Rights
What It Means
A Drag-Along Rights provision allows a shareholder majority (i.e. more than 50% ownership) of a company to force the remaining minority shareholders to accept an offer from a third party to purchase the company, including all terms and conditions therein.
Why It’s Important
Drag-Along Rights are very beneficial to majority equity owners, preventing minority investors from being uncooperative and blocking an exit opportunity that the majority owners might be seeking.
These provisions do have the benefit of ensuring that all shareholders are treated the same and receive the same terms and conditions upon exit. However, the timing, terms, and conditions may not fit with the expectations of the minority investors.