Bro, Do You Drag Along Or Tag Along? A Shareholder Clause Discussion.

Its all about the clauses baby! Indeed, whether or not a contract is good or not is based on what is included in the clauses, so call it the fine print!

Lets talk about drag-along vs tag-along shall we?

Drag-along and tag-along clauses can be included in the shareholder agreements of companies with multiple shareholders. They are used to protect the interests of majority/minority shareholders and to ensure that they are treated fairly if the majority shareholders decide to sell the company or transfer their shares to a third party.

A drag-along clause gives the majority shareholders the right to force the minority shareholders to sell their shares in the company to a third party along with the majority shareholders. The purpose of this clause is to allow the majority shareholders to sell the company without having to worry about the minority shareholders holding up the deal or refusing to sell their shares.

On the other hand, a tag-along clause gives the minority shareholders the right to sell their shares in the company to a third party along with the majority shareholders if they decide to sell their shares. Generally, the purpose of this clause is to ensure that the minority shareholders have the same terms as the majority shareholders and are not left behind or excluded from the sale of the company.

In summary, a drag-along clause allows the majority shareholders to force the minority shareholders to sell their shares vs a tag along clause allows the minority shareholders to sell their shares along with the majority shareholders