Tag-along rights protect minority shareholders by letting them join a sale whenever majority shareholders sell their own shares. If a majority shareholder negotiates a sale of their stake, tag-along holders can include their shares in that same transaction at the same price and terms. This prevents majority holders from selling at a premium while leaving minority holders behind with illiquid shares in a company they may no longer control.
Tag-along rights protect minority shareholders, often founders or early employees, from being left behind in a sale. If a majority shareholder sells, minority holders can tag along on the same terms rather than being stuck holding shares nobody else wants to buy.
This ensures that if investors sell their stake, founders have the option to sell proportionally too, instead of being left in a company under new ownership with no path to liquidity.
When a majority shareholder negotiates a sale of their shares, minority holders with tag-along rights can include their own shares in that transaction, at the same price and on the same terms. The buyer must either purchase the tagged shares as well, or reduce how much they buy from the majority seller proportionally.
Say a founder holds 20 percent of a company and an investor holds 15 percent with tag-along rights. If the founder finds a buyer willing to purchase half of the founder's stake at $10 per share, the investor can exercise tag-along rights to sell a proportional share of their own holding into that same deal at the same $10 per share price, instead of being left holding shares in a company under new ownership.
Tag-along rights may not apply in every sale scenario, such as transfers to affiliates, so read the exact carve-outs in your agreement. Missing the notice period, typically 15 to 30 days, is another mistake that forfeits the right for that particular transaction, so respond quickly once you receive notice of a sale.
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