The obligation to co-sell (Drag-Along) enables the majority shareholders to sell their shares to a third party and at the same time to force minority shareholders to co-sell their shares. If an exit is imminent, it must be feasible under all circumstances, as the exit is usually the only exit channel for the investors. If a total sale of the company is intended, it must therefore be possible, if necessary, against the will of individual shareholders, to sell the entirety of the shares. Drag-along rights are the counterpart to tag-along rights. Looking at this right from an option perspective, it resembles a conditional call option that the owner can exercise if a trade sale buyer is present.
A drag along can be triggered after a certain period of time, a certain company value or with the approval of XX% of the shareholders.
Example of a Drag Along Clause in a Termsheet
The Shareholders’ Agreement shall provide a drag-along right to the benefit of all of the Shareholders.
In the event that the Shareholders with an 80% majority of votes, or, after 31 December 202[_], with a simple majority among the Investors decide to sell the entirety of the existing shares in the Company, all Shareholders shall be obliged to sell all their shares under the same terms as the Shareholder requiring the sale. Such sale shall be accomplished with the assistance of a negotiator who is to be appointed by decision of a qualified majority of the Investors.
In such case, the Shareholders shall procure that the same terms and prices for the sale of shares apply to all Shareholders, with the exception of internal provisions on the application of the distribution of proceeds according to a liquidation preference, if any.