Drag-Along Rights
A contractual right held by majority shareholders to require minority shareholders to participate in a company sale on the same terms.
Drag-along rights ensure that a majority shareholder (typically a PE sponsor or lead investor) can sell 100% of the company to an acquirer without minority shareholders blocking the deal. Without drag-along rights, a single minority shareholder could veto a transaction, holding the deal hostage for a premium or simply refusing consent.
In venture-backed and PE-backed companies, drag-along provisions appear in shareholder agreements, investor rights agreements, and voting agreements. The trigger threshold (often 50%+1 of all shares, or sometimes limited to preferred shareholders) and the conditions of the drag (same price, same form of consideration, same representations) are heavily negotiated.
AI extraction of drag-along provisions is particularly valuable in pre-close diligence — buyers need to verify that the seller's cap table can be fully acquired without minority holdout issues that could delay or prevent closing.
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