Co-Sale Right

A co-sale right (also called a tag-along right) allows a minority investor to participate in a secondary sale being conducted by a major shareholder, typically a founder or early investor. If the lead seller is getting $15/share, the co-sale right holder can require the buyer to also purchase their shares at $15.

Co-sale rights protect minority shareholders from being left behind when large blocks change hands at favourable terms. Without them, a founder could sell half their stake at a premium to a strategic buyer while minority holders have no path to the same exit.

Illustrative example: Investor A holds 10% of a company and has co-sale rights. A strategic acquirer offers Founder B $50M for 30% of the company at $20/share. Investor A can exercise their co-sale right and demand that their shares be included in the $50M transaction at $20/share, reducing Founder B's share of the transaction proportionally.

The gotcha: co-sale rights only apply when triggered by a qualified sale, defined in the documents. A small secondary transfer by a founder to a family trust may not trigger co-sale rights if it falls below a threshold. Investors should read the "permitted transfer" carve-outs in their shareholder agreement carefully, as founders sometimes use these carve-outs to shift shares to related entities without triggering tag-along provisions.