Drag-Along Rights

A provision that gives minority shareholders the right to join a transaction when a majority shareholder sells their stake, ensuring they can exit on the same terms and conditions. Tag-along rights protect minority investors from being left in a company after a controlling interest changes hands.

The contractual right of existing shareholders to participate in future funding rounds on a pro-rata basis, maintaining their ownership percentage. Pre-emption rights protect early investors from dilution and are a standard provision in shareholders' agreements.

Legal entitlements to exploit subsurface resources such as oil, gas, or minerals. Mineral rights are intangible assets that can carry substantial value, require specialised valuation techniques based on reserve estimates and commodity prices, and are subject to depletion accounting rather than amortisation.

A transaction in which existing shareholders sell their equity to new investors rather than the company issuing new shares. Secondary sales provide liquidity to founders and early investors without diluting other shareholders or changing the company's capitalisation.

A group of individuals elected by shareholders to oversee company management, set strategic direction, and protect shareholder interests. Investor-backed companies typically include board seats for lead investors alongside founder and independent directors.

A legally binding contract between a company's shareholders that governs their rights, obligations, and the rules for key decisions including share transfers, board composition, dividend policy, and exit mechanisms. Essential governance infrastructure for investor-backed companies.

A restructuring of a company's capital structure, typically involving a significant change in the mix of debt and equity, without changing the company's total enterprise value. In private equity, dividend recapitalisations (issuing new debt to fund a special dividend to equity holders) are a common mechanism for returning capital to investors prior to exit.

A term in a venture capital or private equity investment that determines the order and amount in which investors are paid before other shareholders in a liquidation event (sale, wind-down, or IPO). Common structures include 1x non-participating and 1x participating preferences.

What are tag-along rights and when would a founder use them?

Tag-along rights allow minority shareholders (founders) to participate in a transaction on the same terms as majority shareholders, preventing founders from being left behind in a sale.