What is tag-along rights?
Short Answer
Tag-along rights allow minority shareholders to sell their shares on the same terms if majority shareholders execute a sale, preventing minorities from being left behind in a partial exit.
Full Explanation
Tag-along is the complement to drag-along. If a majority shareholder negotiates an exit at £10 per share, tag-along rights give minority shareholders the right to sell their shares at the same £10 price in the same transaction. Without tag-along, a majority shareholder could sell their stake to a buyer while minorities are stuck as minority shareholders in the acquiring entity or a less-desirable outcome. Tag-along protects minorities by ensuring they participate in favourable exit events. From a majority shareholder perspective, tag-along creates obligations but is standard and accepted. Most VC term sheets include both drag-along and tag-along in symmetric terms: the threshold for dragging is typically 50% or more (of preferred stock or overall), and tag-along rights apply to all minority shareholders. Founders should ensure that tag-along rights apply to themselves and employees, not just VCs.
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