25 May 2018

What's the difference between tag along and drag along rights?

In a shareholders agreement, tag along and drag along rights are two very different things, designed to serve completely different purposes.


Tag along rights

If a shareholder finds a buyer for its shares, another shareholder with tag along rights will be entitled to ‘tag along’ in the sale.

Tag along clauses are often sought by investors, so that a key shareholder (such as a founder) can’t sell its shares unless it finds a buyer willing to buy shares from all shareholders with tag along rights. Often, that means finding a buyer willing to buy the entire company.

You can learn more about tag along rights here.

If you are an investor, these are 7 things you should look for in a shareholders agreement.

Drag along rights

If a critical mass of shareholders wish to sell the company, drag along rights will allow those shareholders to 'drag' all other shareholders into the sale. (Drag along clauses are sometimes referred to as 'come along' clauses.)

A drag along clause in a shareholders agreement ensures that once a critical mass exists, their plans cannot be derailed by a minority shareholder.

You can read more about drag along rights here.

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About the Author

Greg Henry | Principal

Greg is a principal at Turtons and a senior commercial lawyer who acts for a range of clients mainly in the construction and technology sectors. Greg advises on both transactional and contentious matters.


greg.henry@turtons.com | (02) 9229 2904

About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in privately owned construction and technology businesses.

Greg Henry | Principal

Author

Greg Henry | Principal

greg.henry@turtons.com

Greg is a principal at Turtons and a senior commercial lawyer who acts for a range of clients mainly in the construction and technology sectors. Greg advises on both transactional and contentious matters.


greg.henry@turtons.com | (02) 9229 2904

Guide to Shareholders Agreements

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