Drag-along right
Drag-along right is a legal concept in corporate law.
Under the concept, if the majority shareholder of an entity sells their stake, the prospective owner 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. Drag-along rights are fairly standard terms in a stock purchase agreement.
This right protects majority shareholders but also protects minority shareholders. This differs from a tag-along right, which also allows minority shareholders to sell on the same terms and conditions, 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.
