Tag-along Clause – Shareholders Agreement

What is a tag-along clause and when should you use it?

A Tag-Along Clause protects the interests of Minority Shareholders.

In the case of the majority shareholder selling out, the Tag-Along Rights allow the minority shareholders to jump on the back of the buy-out.

The Tag-Along Clause is generally included in Shareholders’ Agreements to protect the position of the minority shareholders.

Where the majority shareholder decides to sell his/her shares, this clause gives the minority shareholders the right to sell their shares to the same buyer for the same price and on the same terms and conditions.

In basic terms, the Tag-Along Clause prevents a majority shareholder selling his/her stake in a company and leaving the other shareholders without an exit and with a change of company control.

You may also want to consider a drag-along clause.

A Drag-Along Clause is used in a Shareholders’ Agreement to protect the interests of the Majority Shareholders.

It protects the interests of the Majority Shareholder by enabling a majority shareholder to force a minority shareholder to join in the sale of a company.

What else might you need?

To get a better understanding of Shareholder’s Agreements and how they work we’ve got some great guides to help you:

Shareholders Agreements

Protect your interests with a shareholders agreement

We’ve also got a useful checklist to help you when drafting your shareholders agreement.