Drag-Along Rights are provisions in an investment agreement that allow majority shareholders to compel minority shareholders to participate in the sale of a company under the same terms and conditions. This ensures a smoother transaction process by preventing minority shareholders from blocking a sale.
Why It Matters: These rights protect majority shareholders’ interests and streamline potential exit opportunities. For investors, it offers confidence that all shareholders will align in a sale, making the company more attractive to potential buyers.
Example Scenario: If a company is being acquired, and majority shareholders wish to sell, Drag-Along Rights can require minority shareholders to agree to the sale, ensuring all parties receive proportional proceeds.
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Why are Drag-Along Rights important?
They protect majority shareholders' interests and make exit strategies smoother by preventing holdouts.
Do Drag-Along Rights disadvantage minority shareholders?
Potentially, as they must join a sale even if they disagree, but they still receive sale proceeds under the same terms.
When are Drag-Along Rights commonly used?
They’re often included in venture capital agreements to ensure alignment in case of a company sale.
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