Shareholders’ Agreement – Transfer of shares: Drag Along

In a previous blog post, we have been discussing items that can be included in a shareholders’ agreement.  Restrictions on the transfer of shares is often included in shareholders’ agreements, as discussed in this post, and while not really a restriction on transfer, a drag along right is often included in shareholders’ agreements as it relates to the sale of shares.

A “drag along” clause in the shareholders’ agreement allows a certain proportion of the company’s shareholders to force a sale of the company if they approve the terms of the third party offer.  Typically, the drag along provision is only triggered if a significant percentage of shareholders approve the transaction (e.g.. shareholders representing 75% of the outstanding shares).  When invoked, a drag along clause provides that the hold outs can be “dragged along” and forced to sell their shares.  A drag along clause can prevent minority shareholders from stopping a sale of the company where the buyer wants the entire company, and not just a significant piece of it.

Thinking of putting a shareholders’ agreement in place for your company?  Contact us.

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This blog post is intended to provide general information and does not constitute legal advice. You should consult a lawyer for advice regarding your individual situation.

Every effort has been made to ensure the contents of the blog post were accurate as of the date it was written, however, the law can change and we cannot guarantee that the information remains accurate.  In addition, because the comments above are of a general nature, they may not apply for every situation.  If you have questions, please contact us and we would be happy to discuss your individual circumstances, and whether there have been any changes to the law that would affect the information presented.