Shareholders' agreements

Tag-along and drag-along

Shareholders want to regulate what happens when a shareholder, particularly a majority one, receives an offer to sell its stake.

In one line

Tag-along protects the minority shareholder by allowing it to join the sale; drag-along enables the majority shareholder to compel the minority to join a total sale. They are opposite, complementary mechanisms.

First steps

Determine whether tag-along, drag-along, or both are appropriate
Set thresholds and triggering events
Establish equivalent price conditions and terms
Specify the procedure and deadlines
Align the clauses with the agreement and the bylaws

Tag-along right

The tag-along clause allows the minority shareholder to join the sale when the majority shareholder sells its stake to a third party, under the same price and terms.

It is a typical protection for minority shareholders and investors: it prevents them from being locked into the company alongside a new controlling party they did not choose, guaranteeing an exit on equal terms.

Drag-along right

The drag-along clause allows the shareholder receiving an offer for the entire capital to require the others to sell under the same terms, facilitating transactions that require transferring one hundred percent of the capital.

We design both clauses in a balanced way, with thresholds, price conditions and clear procedures, aligned with the rest of the agreement and with the bylaws under Law 19,550.

Common mistakes

Confusing tag-along with drag-along
Failing to balance protection between majority and minority shareholders
Omitting price conditions and equivalence of terms
Drafting ambiguous triggering provisions that lead to disputes

Frequently asked questions

What is tag-along?

The minority shareholder's right to join the majority shareholder's sale, under the same conditions, as an exit route.

What is drag-along?

The right of the shareholder with an offer for the entire capital to require the others to sell under the same conditions.

Is it advisable to include both clauses?

It usually is; combined, they balance the interests of majority and minority shareholders and facilitate future transactions.

This page is informational and does not replace professional advice on your specific case. It does not imply any promise of results.

Govern the sale of capital with clear rules

We design balanced tag-along and drag-along clauses. Contact us to get started.

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