What are drag and tag clauses?

By Daniel Atherton

Drag and tag are two types of clauses in agreements between shareholders of a company.

Drag along

The drag clause will typically protect the majority shareholder.  It allows them to force the other shareholder(s) to sell their shares if the majority shareholder finds a buyer for the company.  I.e. it allows them to drag the other shareholders along.

Tag along

The tag clause will typically protect any minority shareholder(s).  It allows them to force their shares to be sold at the same time – if a buyer is found.

Protection

These clauses provide protection for the shareholders share value from being adversely affected due to them not being able to sell them.

See also

  • Minority Discount
 
 

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