Tag-Along

Tag-along rights (see also: co-sale rights) give minority shareholders the option to participate in a sale being conducted by a controlling or majority shareholder, ensuring they receive the same per-share price and terms. If a founder negotiates a sale at $20 per share, tag-along holders can demand inclusion at $20.

Tag-along rights are a fundamental minority-investor protection. Without them, a majority shareholder could negotiate a premium sale — capturing the "control premium" for themselves — while minority shareholders are left holding illiquid shares with no comparable exit path.

Illustrative example: a company's shareholder agreement gives Series B investors tag-along rights on any founder share sale exceeding 5% of outstanding shares. A strategic investor offers a founder $15M for 10% of the company. Series B investors can tag along, requiring the strategic to also purchase a proportional amount of their shares at the same valuation.

The gotcha: tag-along rights are often subject to minimum size thresholds — they only trigger on sales above a certain percentage of shares. Founders and large holders may structure secondary sales just below the trigger threshold to avoid activating tag-along rights. Additionally, some buyers will simply withdraw an offer rather than accept additional sellers they did not plan for, making the tag-along right technically enforceable but practically complicated.