What Does “Drag-Along” Mean in a Contract?
Rights allowing majority shareholders to force minority shareholders to join in a sale of the company on the same terms.
Detailed Explanation
Drag-along rights ensure majority shareholders can deliver 100% of the company to a buyer without minority holdouts blocking the deal. Minority shareholders must sell their shares on the same terms as the majority.
From minority perspective, drag-along means you could be forced to sell even if you disagree with the price or timing. Protections include minimum price requirements, approval thresholds, and limits on when drag-along applies.
Example in a Contract
“If holders of 60% of the outstanding shares approve a sale of the Company, all shareholders shall be required to sell their shares to the acquirer on the same terms and conditions.”
Why It Matters
As a minority shareholder, drag-along means you don't control your exit. You could be forced out at a price or time you don't prefer. Review the threshold required to trigger drag-along and any protective conditions.
Related Terms
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