The Importance of Shareholder Agreements and Tag Along & Drag Along Rights 🚀

When startups grow and raise funds, the Shareholder’s Agreement (SHA) becomes vital.

It outlines the rights and duties of shareholders, and includes crucial terms like pre-emption rights, Tag Along Rights, and Drag Along Rights.

In private companies, minority shareholders face restrictions to maintain control and share patterns.

Majority shareholders use Tag Along and Drag Along Rights to ensure flexibility and smooth exits.

👉 Drag Along Rights:

➡️ Majority shareholders can compel minority shareholders to sell their shares during a sale.
➡️ Ensures that potential buyers get full control without blockages from minority shareholders.
➡️ Protects majority shareholders’ exit strategies and offers minority shareholders favorable sales terms.

👉 Tag Along Rights:

➡️ Allows minority shareholders to join in the sale under the same terms as the majority.
➡️ Ensures that minority shareholders are protected and receive fair treatment during a sale.

📍 Conclusion: Tag Along and Drag Along Rights are key to maintaining company flexibility and protecting all shareholders.

Including these in the SHA creates a fair and smooth process for everyone involved.