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DRAG-ALONG CLAUSE

A Drag-Along Clause is used in a Shareholders’ Agreement to protect the interests of the Majority Shareholders.

 

A Drag-Along Clause protects the interests of the Majority Shareholder by enabling a majority shareholder to force a minority shareholder to join in the sale of a company. For example, if a third party offers to buy out a company and the majority shareholder wish to accept the deal, a drag-along right will ensure that minority shareholders accept the buy-out. Basically the minority shareholders are dragged into accepting the deal on the terms negotiated by the majority shareholder.

 

Generally, a Drag-Along Clause is appealing to buyers because some buyers are only looking to have complete control of a company, thus, drag-along rights allow for a clean transaction by ensuring that minority shareholders cannot refuse to sell their shares to the buyer. Since the minority shareholders aren’t left to disrupt the plans of the buyer, the buyer can then buy 100% of the company's shares and become the new owner.

 

Please note that this Drag-Along Clause template is already included in the Shareholders Agreement - Protection Majority Shareholders



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