Tag Along Rights: Protecting Minority Shareholders
What Are Tag Along Rights?
Tag along rights (also called co-sale rights) protect minority shareholders by allowing them to join a sale when majority shareholders sell their stake. If a majority owner finds a buyer, minority holders can "tag along" and sell their shares on the same terms.
Without this protection, majority shareholders could sell to a buyer and leave minority holders stuck with a new, potentially unfavorable controlling partner.
How Tag Along Rights Work in Practice
- A majority shareholder receives an offer to sell their shares
- The majority holder must notify minority shareholders of the deal terms
- Minority holders can elect to sell a proportional amount of their shares in the transaction
- The buyer must purchase the minority shares at the same price per share
- If the buyer refuses, the majority sale typically cannot proceed
What to Look For in Your Agreement
- Pro-rata vs. full participation — Some clauses only allow you to sell a proportional share, while others permit selling your entire stake
- Notice requirements — Ensure you receive adequate notice (typically 15-30 days) to decide whether to participate
- Same terms guarantee — Verify the clause explicitly requires identical pricing and conditions
- Exceptions — Watch for carve-outs that exclude certain types of transfers, like gifts to family members or transfers to trusts
When to Consult a Lawyer
If you are a minority investor in a private company, consider having an attorney review the tag along provisions in your agreement. This is especially important if the clause has limited participation rights or broad exceptions that could reduce your protections.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.