Saturday, November 17, 2018

Drag-Along Rights

Term Definition
Drag-Along Rights

Contractual rights to force (or 'drag along") all other stockholders to agree to and participate in a specific corporate or stockholder action, usually a sale of the company, alongside the initiating investor/stockholder. Drag-along rights are frequently provided in a stockholders' agreement or an investors rights agreement.  With these rights, one or more investors/stockholders (often those holding a majority or a higher specified percentage of the outstanding shares), can initiate a sale of the company and the minority will be required to approve it and participate on a proportional basis ) by selling their shares. This provision operates to prevent minority stockholders from blocking a sale of the company that receives approved by the majority.