Drag-along right (DAR) is a concept in

corporate law Corporate law (also known as company law or enterprise law) is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. The term refers to the legal practice of law relating to corpora ...

, often encountered in the context of

venture capital Venture capital (VC) is a form of private equity financing provided by firms or funds to start-up company, startup, early-stage, and emerging companies, that have been deemed to have high growth potential or that have demonstrated high growth in ...

and

private equity Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...

. Under the concept, if the majority shareholder(s) of an entity sells their stake, the prospective owner(s) have the right to force the remaining minority shareholders to join the deal. However, the owner must usually offer the same terms and conditions to the minority shareholders as to the majority shareholder(s). Drag-along rights are fairly standard terms in a stock purchase agreement. This right protects majority shareholders (allowing them to sell to an owner desiring total control of the entity, without being encumbered by holdout investors), but also protects minority shareholders (who can sell their investment on the same terms and conditions as the majority shareholder). This differs from a tag-along right, which also allows minority shareholders to sell on the same terms and conditions (and requires the new owner to offer them), but does not require them to sell. In most jurisdictions drag-along and tag-along rights are not statutory rights and will need to be included in the shareholders agreement or

articles of association In corporate governance, a company's articles of association (AoA, called articles of incorporation in some jurisdictions) is a document that, along with the memorandum of association (where applicable), forms the company's constitution. The ...

of the company. The provisions will typically specify the percentage of shareholders required for triggering the drag-along right. Drag-along rights typically terminate upon an

initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investm ...

.www.altassets.com

References

External links

Drag-along rightsThe Dark Side of Drag-Along/Tag-Along Rights
Corporate law {{law-term-stub

See also

References

External links