What are ‘tag along’ rights?

‘Tag along’ rights are provisions in a company’s articles of association or in a shareholders agreement which are designed to ensure that minority shareholders are not excluded when there is a sale of a controlling interest.

Small shareholdings in private companies give little power and are unlikely to be saleable on their own.  The best chance of realising their value is by participating in a sale of the whole company.  If the majority shareholders can sell a controlling interest without involving the minor shareholders, those minor shareholders could be left with a worthless shareholding. Tag along rights work by prohibiting a sale of a controlling interest unless the purchaser is willing to buy all the share in the company on the same terms.

See also ‘Drag Along‘.

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