Tag-Along Rights

Tag-along rights are a type of contractual provision that gives a minority shareholder in a company the right to participate in future equity financing rounds on the same terms as the majority shareholder. This means that the minority shareholder will not be diluted by the issuance of new shares to new investors, and will instead be able to maintain their proportional ownership stake in the company.

Tag-along rights are often used as a way to protect minority shareholders from being squeezed out of a company by the majority shareholder. For example, if the majority shareholder decides to sell their shares to a third party, the minority shareholders would have the right to sell their shares on the same terms. This would prevent the majority shareholder from selling their shares at a premium and leaving the minority shareholders with no way to exit the company.

Tag-along rights can also be used to encourage minority shareholders to participate in future equity financing rounds. By giving them the right to participate on the same terms as the majority shareholder, tag-along rights make it more likely that the minority shareholders will agree to invest in the company. This can be beneficial for the company, as it can help to raise capital and grow the business.

Tag-along rights are not always included in corporate charters or shareholder agreements. However, they are becoming increasingly common, as minority shareholders are becoming more aware of their importance. If you are a minority shareholder in a company, it is important to understand your tag-along rights and how they can protect your investment.

Here are some additional details about tag-along rights:

* Tag-along rights are typically triggered when the majority shareholder sells their shares to a third party.
* The minority shareholder has the right to sell their shares on the same terms as the majority shareholder, including the price and the terms of the sale.
* Tag-along rights can be exercised by the minority shareholder within a certain period of time, typically 30 days.
* Tag-along rights can be waived by the minority shareholder.
* Tag-along rights can be limited to certain types of equity financing rounds, such as a public offering or a private placement.

Tag-along rights are a valuable tool for minority shareholders. They can help to protect their investment and ensure that they are not diluted by the majority shareholder. If you are a minority shareholder, it is important to understand your tag-along rights and how they can benefit you.