What is a co-sale right (tag-along right for shareholders)?

Full Explanation

Co-sale differs from tag-along (which applies to external sales of the company) because it applies to secondary sales of shares. If a founder or early investor receives an offer to sell shares, co-sale rights allow other shareholders to sell alongside them at the same price. Example: a founder wants to sell 10% of the company to a secondary buyer at £2/share. Other shareholders (including employees with vested options) can exercise co-sale to sell their shares at the same £2/share price. Co-sale is important for employee retention: without it, founders and early investors could sell at premium prices whilst employees are stuck holding illiquid shares at lower valuations. Co-sale is standard in Series A and later rounds. The threshold is typically 1-5% (any holder selling above that threshold triggers co-sale for other shareholders). For companies planning M&A or secondary sales, understanding who has co-sale rights is critical to deal structure.

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