Drag-along right (DAR) is a legal concept in corporate law.
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
Tag along rights (TARs) comprise a group of clauses in a contract which together have the effect of allowing the minority shareholder(s) in a corporation to also take part in a sale of shares by the majority shareholder to a third party under the s ...
, 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 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 investme ...
.
www.altassets.com
See also
*Pre-emption right A pre-emption right, right of pre-emption, or first option to buy is a contractual right to acquire certain property newly coming into existence before it can be offered to any other person or entity. It comes from the Latin verb ''emo, emere, emi, ...
*Right of first refusal
Right of first refusal (ROFR or RFR) is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transactio ...
*Tag-along right
Tag along rights (TARs) comprise a group of clauses in a contract which together have the effect of allowing the minority shareholder(s) in a corporation to also take part in a sale of shares by the majority shareholder to a third party under the s ...
, the converse concept
References
External links
Drag-along rightsThe Dark Side of Drag-Along/Tag-Along Rights
Corporate law
{{law-term-stub