Tag-along rights in publicly traded companies
Tag-along rights are pre-negotiated rights that a minority shareholder includes in their initial issuance of a company’s stock. These rights allow a minority shareholder to sell their share if a majority shareholder is negotiating a sale for their stake.
Who benefits from drag along rights?
Drag-along rights and tag-along rights are important forms of investment realisation in a shareholders agreement. Drag-along rights favour the majority shareholder while tag-along rights are more beneficial to the minority shareholder.
Can you have drag along and tag-along rights?
Drag-along rights are normally triggered in the event of mergers and acquisitions and are designed to protect majority shareholders. Alternatively, a partnership agreement can give the shareholders tag-along rights.
What are drag shares?
A drag along clause will allow the majority shareholder to ‘drag’ the remaining minority shareholders with them and require them to sell their shares to the potential buyer at the same price, in order to allow the buyer to purchase the entire company.
What is a majority shareholder?
A majority shareholder is a person or entity that owns and controls more than 50% of a company’s outstanding shares. As a majority shareholder, a person or operating entity has a significant amount of influence over the company, especially if their shares are voting shares.
How do tag-along rights work?
A tag along provision is a clause that allows minor shareholders to ‘tag along’ with a larger shareholder or group of shareholders if they find a buyer of their shares. The purpose of a tag along provision is to ensure minor shareholders are not left behind in the event a major shareholder decides to exit the venture.
What is the difference between drag along and tag-along rights?
Tag-Along Rights FAQs
Tag-along or co-sale rights are essentially the opposite of drag-along rights. Whereas tag-along rights give minority shareholders negotiating rights in the event of a sale, drag-along rights force the minority shareholders to accept whatever deal is negotiated by majority shareholders.
Does a 50% shareholder have control?
If you hold over 50% you are likely to have a controlling interest which allows you to shape the company’s direction. However, no matter how many shares you have, there are certain rights that you can exercise as a shareholder.
What does owning 51% of a company mean?
majority owner
Someone with 51 percent ownership of company assets is considered a majority owner. Any other partner in the business is considered a minority owner because he owns less than half of the business. The rights of a 49 percent shareholder include firing a majority partner through litigation.
What rights does a 51% shareholder have?
Majority shareholding
With a majority of over 50% shareholding, they are able to pass ordinary resolutions such as (i) authorising the directors to allot shares (other than if there is one class of share, as this is authorised under company law), and (ii) appointing and/or removing directors.
What can a 25% shareholder do?
Special resolutions
It follows that shareholders holding more than 25% of the shares may block the others from passing a special resolution.
Can a 50 shareholder remove a director?
Neither director can remove the other, as that requires a vote from 51% of the shareholders. Neither can overrule the other, as that requires an 80% vote from the shareholders.