Tag-Along Right
A tag-along right lets minority shareholders join a sale by the majority on the same terms, so that a founder or a lead investor cannot sell their stake — and control — to a buyer while leaving everyone else behind with a new, unknown owner. It is the mirror of the drag-along: the drag lets the majority force a sale, the tag lets the minority share in one.
- Also known as
- Tag-along, Co-sale right, Tag right
- Used at
- shareholders' agreements of private companies; invoked when a shareholder above a threshold agrees to sell to a third party
- Binding
- yes — the selling shareholder must procure that the buyer offers the same price and terms to the tagging shareholders, or the sale cannot proceed
- Typical trigger
- a sale of shares that would move control, or any sale by a holder above a stated percentage; small transfers to affiliates and to employees are usually exempt
- Typical mechanics
- the seller gives notice of the price and terms; each minority holder has 10–20 days to elect to sell pro rata (or, in a change of control, all of their shares); the buyer takes everyone who tags or nobody
- Parties
- the selling majority, the tagging minority, and the buyer, who must be told the tag exists before it prices the deal
How a tag-along right works in practice
A buyer approaches a company's founder and offers to buy her 55%. Without a tag, she can sell, take the premium a buyer pays for control, and leave the investors and staff owning 45% of a company run by someone they never chose. With a tag, the offer must extend to everyone: the buyer either buys the whole company at that price per share or buys nothing. In practice the tag turns an approach for a stake into a sale of the company, which is the point — minority shareholders in a private company have no market for their shares, and the tag is their only exit.
The details decide how much protection it gives. A tag on any transfer catches too much — an angel selling 1% to another angel should not trigger it — so the trigger is usually a change of control or a sale above a threshold. The tagging holders get the same price per share, adjusted for class if preferred shares carry a preference, and the same terms, including any earn-out or deferred consideration. The buyer's diligence therefore has to include the cap table, because a tag it did not know about changes what it is buying and what it must pay.
In fintech the tag and the regulator interact: a buyer who ends up with 100% through tags needs approval as sole controller, and one who planned to buy 55% and hold the rest with the founders needs a different application.
Example
A payments company has a founder with 55%, a growth fund with 30% and employees and angels with 15%. A bank offers the founder €22m for her 55% — €40m for the company. The shareholders' agreement gives everyone a tag on a change of control. The fund tags, and so do the holders of 14 of the 15% held by staff and angels; the bank must find €39.6m rather than €22m, and does, because it wanted the company and not a partner. One angel with 1% does not tag; the bank's application to the regulator names him as a remaining minority holder, and it later buys him out under the drag. Without the tag, the fund would have been a 30% shareholder in a bank subsidiary with no path to liquidity.
Common mistakes
- A tag that triggers on every transfer, so routine secondary sales become company-wide events. - Tagging holders offered the same price per share without adjusting for a liquidation preference, so common and preferred holders fight over a single number. - A buyer pricing a majority stake without reading the shareholders' agreement. - Tag notices with no deadline, leaving the sale open for months. - Founders granting a tag without a drag, so the minority can join a sale but cannot be made to.