Definition
Drag-along rights are contractual rights (typically in a stockholders’ agreement of a private company) that allow a majority of shareholders (or a specified group) to compel minority shareholders to sell their shares on the same terms in a sale of the company.
Why they matter
Drag-along rights are essential for private-company exits:
- Acquirers prefer 100% — most strategic acquirers want full ownership; without drag-alongs, holdout minorities can block a deal
- Sponsor exits — VC and PE investors structure drag-alongs into early-stage agreements to preserve exit flexibility
- Tender-offer parallel — drag-alongs provide via contract what state law (squeeze-out merger) provides for public companies
Typical thresholds
- Majority of preferred (or specific series)
- Often combined with board approval and minimum-price floors
Distinction
Tag-along rights protect minorities by letting them join a sale initiated by majority. Drag-along rights force minorities to join.