What are tag-along rights and when would a founder use them?
Short Answer
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.
Full Explanation
Tag-along is the inverse of drag-along: if the majority (investors) sells shares to a third party, minority shareholders (founders) can require the buyer to acquire their shares at the same price and valuation. Example: investors own 60% and negotiate an acquisition at £10M (£16.67 per share). Founders with 40% can tag along and force the buyer to purchase their 40% at the same £16.67/share price, netting £6.67M to founders. Without tag-along, a buyer could pay investors a premium for control (£20/share) whilst giving founders only £10/share. Tag-along prevents this discrimination. Tag-along is standard market protection for all shareholders, not just founders. The threshold is typically modest (20-25% ownership) because any minority wants this protection. For investors, tag-along is universally accepted because it encourages the full shareholder base to cooperate in exit negotiations — no one gets left behind, so everyone is incentivised to accept the best offer.
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