Tag-along right
The right of minority shareholders to participate proportionally if a majority shareholder sells. Protects minorities from being left behind.
| Tag-along | Lets minority opt IN to a majority sale |
|---|---|
| Drag-along | Forces minority to participate in a majority-approved sale |
| Tag triggers | Majority sells a defined percentage to a third party |
| Tag scope | Pro rata to the majority's sale percentage, same per-share price |
The mechanics
A typical tag-along provision runs:
- The majority shareholder receives a third-party offer to buy some or all of their shares.
- The majority delivers notice to the minority, attaching the offer terms.
- The minority has a defined notice period (commonly 20–30 days) to elect to participate.
- If the minority elects, they sell the same proportion of their shares (relative to total holdings) to the third party on the same per-share terms.
- If the majority cannot deliver the additional shares to the buyer (because the buyer doesn't want them), the majority must reduce their own sale by the corresponding amount.
Why tag-along matters for minorities
Without a tag-along, a majority shareholder could sell their position to a strategic buyer at a premium, while the minority is left holding shares in a company now controlled by a party they didn't choose, often at a depressed valuation. The tag-along prevents this by ensuring that any liquidity event available to the majority is also available pro rata to the minority.
The right is particularly valuable to early employees and founders who hold meaningful but minority positions, and to small institutional investors who don't have the leverage to negotiate a separate exit.
Standard limits and exceptions
Tag-along provisions typically exclude:
- Transfers to family members, trusts, or affiliated entities of the majority
- Transfers on death or by will
- Transfers under existing pre-approved arrangements (founder secondaries, scheduled liquidity events)
- Transfers below a defined percentage threshold
The carve-outs are negotiated case by case in the shareholder agreement.
Octelligence captures tag-along and drag-along rights per shareholder agreement and surfaces them when a proposed share transfer would trigger either right. The transfer workflow runs the right notices and tracks the response window.
See share transfer workflowNotice generation, minority response tracking, and a share register that records every transfer.