Tag-along Right

A tag-along right allows minority shareholders to sell alongside the majority in a sale. If the majority finds a buyer, the minority can sell its shares on the same terms. This protects them from being left behind with a new, unwanted majority owner. The economic core of the clause is equal treatment: without it the majority shareholder could capture a control premium alone while the minority is left with an illiquid stake and an unfamiliar partner.

Also governed are the triggering events, for example only above a certain size of sale, the exercise period, equality of terms including warranties and liability shares, and exceptions for transfers within the group or to related parties. Its counterpart is the drag-along right, allowing the majority to force the minority to sell. Both clauses regularly appear side by side in shareholders' agreements and are negotiated together, because jointly they determine the company's ability to be sold.

The right is structured either pro rata, so the minority shareholder can sell the same percentage of its shares as the majority holder, or in full, allowing it to tender its entire stake, which is agreed in particular on a change of control. The notice period, equal treatment on terms, meaning the same price per share and the same warranties, and whether the right also applies to transfers to affiliates all need to be settled. Without this detail the clause is hard to enforce in practice.

Note: This explanation is for general information only and does not constitute legal advice. The legal position depends on the individual case and may change with new legislation or case law. For a binding assessment, please consult a qualified lawyer.