Drag along rights

Companies who have (or will have) minority shareholders, should ensure that bespoke articles of association (Articles) and a shareholders agreement are drafted as soon as possible to include (along with other provisions) a drag along clause.

Drag along clauses can be vital to ensure that any sale of the company is both seamless and attractive to potential buyers.

Why is a drag along clause important?

A bespoke drag along clause drafted into a company’s Articles is essential as it allows a majority of the shareholders (usually more than 75%) to accept an offer to buy their shares and to force the remaining shareholders to accept such offer on the same terms.

Negotiating drag along terms

If you have minority shareholders in your company, it would be wise to insert drag along provisions in your Articles and any shareholders agreement sooner rather than later. This will ensure that minority shareholders are dragged along in any potential sale and enable you to deliver 100% of the shareholding to the purchaser with minimum fuss and no claim for unfair prejudice.

Drag along clauses are generally part of wider negotiations. Commonly, where drag along rights are agreed, tag along rights are part of the negotiation. Limitations, whether in terms of time period for the drag along to apply or other associated caveats and conditions may provide some comfort to minority shareholders.

We are experienced in advising on the negotiating points and how to get the most equitable, practical and cost effective solution in place

Get in touch with us for cost effective advice on all aspects of shareholder agreements, articles and company law.