What is the drag-along clause?
In practice, drag-along provisions give majority shareholders who wish to sell their shares to an unrelated third party the right to force the remaining shareholders to sell their shares on the same terms.
How do you write a drag-along clause?
With respect to a Change in Control which receives Majority Sponsor Approval, each Shareholder hereby agrees, if requested by the Majority Sponsors, to Sell the same percentage (the “Drag Along Sale Percentage”) of the total number of each class of such Shares held by the Prospective Selling Shareholders that is …
Are drag along rights enforceable?
This issue was the subject of a ruling from the Delaware Court of Chancery in Halpin v. Riverstone National, Inc., C.A. The court held that a majority owner’s drag rights were not enforceable because it did not comply with the drag sale notice provisions contained in the governing agreement.
What is the effect of a drag along provision in a unanimous shareholder agreement?
“Drag-along” Provision. This provision prevents minority shareholders from blocking a potential sale of the company should a majority shareholder wish to exit the corporation.
Which is better drag along or tag along?
Whereas a ‘tag along’ clause provides protection to small investors, a ‘drag along’ provision protects the interests of the major shareholder(s). A ‘drag along’ clause allows a large shareholder (or group of shareholders) to ‘drag’ the other shareholders into a joint sale of the entire venture.
What is the difference between tag along and drag along?
A drag-along provision enables a majority shareholder to force a minority shareholder to join in the sale of a company. Tag-along rights do not require a minority shareholder to sell; it simply gives them the option to tag-along and sell their shares along with the majority shareholder.
What is the purpose of drag along rights?
In the event of a sale of a controlling interest by the shareholder(s) holding a specified majority of shares, a drag-along right enables the selling majority shareholder to procure an exit by forcing the remaining minority shareholders to similarly sell their shares to a bona fide third party purchaser on broadly the …
What are customary exceptions to drag along?
“Drag–along” right: Subject to customary exceptions, if holders of [50]% of the Preferred approve a proposed sale of the Company to a third party (whether structured as a merger, reorganization, asset sale or otherwise), [__________] will agree to approve the proposed sale.
Why are drag along rights important?
The drag-along provision itself is important to the sale of many companies because buyers are often looking for complete control of a company. Drag-along rights help to eliminate the current minority owners and sell 100% of a company’s securities to a potential buyer.
How does drag along work?
A drag along right allows a majority of shareholders to force minority shareholders to join the majority in a sale of the whole of the company to an unrelated third party. The expression “drag along” comes from the idea that the minority shareholders are being forced against their will to sell their shares.
What does drag along and tag along rights mean?
Drag along and tag along rights A Shareholders’ agreement is an important contract between shareholders and the company, and between the shareholders themselves. It governs the shareholders’ rights, obligations and liabilities.
What are the rights of drag along shareholders?
In connection with the sale of their shares of Common Stock pursuant to this Section 4.03, the Drag-Along Shareholders shall not be required to make any representations and warranties other than the Shareholder Representations.
What are sample clauses for drag along rights?
Drag-Along Rights Sample Clauses. Drag-Along Rights. Sample Clauses. Drag-Along Rights. (a) If the Sponsor and its Affiliates propose to transfer all or any portion of the shares of Common Stock beneficially owned by them to a Third Party (a “ Drag -Along Sale”), you and your Permitted Transferees shall, at the Sponsor ’s option and in
Do you have to participate in the drag along sale?
Subject to Section 7.4 (c ), you shall be required to participate in the Drag-Along Sale on the terms and conditions set forth in the Drag-Along Notice.