Drag along rights

Companies with, or expecting to have, minority shareholders should put bespoke Articles of Association (Articles) and a shareholders’ agreement in place as early as possible. These should include a drag-along clause, alongside other provisions tailored to the company’s needs.

Drag-along clauses can be vital in making a company sale more straightforward and attractive to potential buyers.

Why is a drag along clause important?

A bespoke drag-along clause in the company’s Articles can allow shareholders meeting an agreed threshold (often more than 75%) to accept an offer for their shares and require the remaining shareholders to sell on the same terms, subject to the clause’s conditions.

Negotiating drag along terms

If your company has minority shareholders, it is worth considering drag-along provisions in the Articles and shareholders’ agreement early. These can help ensure that minority shareholders participate in a sale, allowing the buyer to acquire 100% of the shares with less difficulty. Properly drafted provisions can also reduce the risk of disputes, although they cannot guarantee that an unfair prejudice claim will not arise.

Drag-along clauses are usually negotiated as part of wider shareholder arrangements. Tag-along rights are often considered alongside them. Time limits, conditions and other safeguards may provide additional protection for minority shareholders.

We can advise on the key negotiating points and help you put practical, proportionate and cost-effective arrangements in place.

Get in touch for cost-effective advice on shareholder agreements, Articles of Association and company law.