drag-along rights

(redirected from Drag Along Rights)

Drag-Along Rights

The right of majority shareholders to force minority shareholders to sell their shares to a third party or to liquidate the company. Majority shareholders may exercise drag-along rights if a potential buyer will only agree to purchase 100% of a company.

drag-along rights

The right of majority shareholders to force minority shareholders to join in a sale of a company. These rights allow majority shareholders to complete a sale in the event a buyer wants to own 100% of the firm.
References in periodicals archive ?
Some private equity investors affectionately refer to their drag along rights as their "nuclear option." On the other hand, for many business owners, a drag along right represents a Damocles sword, a threat that they may be forced to sell their business if the investor decides to drag him or her along, usually at a valuation over which he or she has no control.
Unfortunately, perhaps a majority of owners of businesses who seek private equity investment for the first time are not even aware of the existence of drag along rights; very often when business owners find out about drag along rights being required by an investor, that is the end of the discussion.
In a nutshell, the negotiation between an owner and investor with respect to drag along rights is a function of the relative bargaining strength of the parties and their negotiating ability.
Others, known as drag along rights, force minority shareholders to sell in a takeover, which can prevent them from thwarting a deal desired by the majority.
A drag along right is usually offered to a majority of the shareholders (or such number of shareholders that can exercise control over the startup's management and affairs).