Legal & Compliance
What is a drag-along right?
A drag-along right allows a majority of shareholders (often led by investors) to force minority shareholders to approve a sale of the company. It prevents a small group of shareholders from blocking an acquisition that the majority supports.
Drag-along rights (also called "drag-along provisions") are a standard feature of VC-backed company shareholder agreements. They exist to prevent minority shareholders from blocking corporate transactions that the majority — typically major investors and founders — want to do.
Without a drag-along, even a small minority shareholder could in theory block an acquisition by refusing to vote in favor of the transaction. This creates significant leverage for unhappy ex-employees, early angels, or other small stakeholders.
A typical drag-along might trigger when: (1) the board approves the transaction, (2) a majority of preferred stock approves, and (3) a majority of common stock approves. If those thresholds are met, all other shareholders are required to vote in favor, sign any required documents, and sell their shares at the same price.
Key negotiating points: - **Who triggers the drag?** — Is it a board vote? A majority of preferred? A supermajority? - **Price thresholds** — Some drag-alongs include a minimum price threshold, protecting common shareholders from being forced to sell at a price that doesn't return their investment. - **Exclusions** — Founders may negotiate carve-outs that protect them from being dragged into bad deals.
Drag-along rights are almost universal in institutional VC deals. The alternative — needing unanimous consent for transactions — is considered unworkable for companies with complex cap tables.