By maxyale-2 avril 13, 2021 In

Tag Along Rights In Shareholders Agreement

A common bargaining point is whether the Tag Along right should apply: a Tag Along clause prevents a major shareholder or group of major shareholders from selling their shares without giving other shareholders the right to participate in the sale (or “tag along”. A drag along clause allows a large shareholder (or group of shareholders) to “pull” other shareholders into a joint sale of the entire company. As a major shareholder, you can, for example, demand that a small portion of your shares be excluded from the Tag Along clause – so that, if you find a willing buyer, you can sell those shares and be rewarded in part for your contribution without watering off other shareholders. There are two main types of Tag Along rules. The first (full right of Tag Along) allows the minority shareholder to sell all of its shares in the event of a transaction between the majority shareholder and a third party. The second (“an-rata” tag-along right) obliges the majority holder to reduce the amount of equity he wants to sell and to give the minority the opportunity to sell his shares proportionally (pro-rata). [9] Whole rights are generally found in companies where there are few investors and where each investor has strong rights, because “the contractual rights of investors balance each other and a controlling member has only limited flexibility to obtain private services, if at all,” while the proportional option is the “appropriate measure” for companies with many low minority investors. [9] In the event of the sale of a majority interest by the shareholder (s) who owns a certain majority of the shares, a drag-along right allows the majority selling shareholder to withdraw by forcing the remaining minority shareholders to sell their shares on the same terms to a third-party buyer in good faith. As an investor, you are often looking for all the shares of a company, but it is possible that some minority shareholders will refuse to sell their shares. By agreeing to a De Bring Along clause, minority shareholders are required to offer their shares to the investor.

In most cases, the majority shareholder can only be invoked if the transfer to the third-party buyer is made in return for cash payment. Bring-Along rights thus simplify the sale of a business and avoid conflicts in the event of an offer to buy by the majority of shareholders. Minority shareholders thus capitalize on the sale of a company organized by a majority shareholder. relative to their existing holdings (unless the agreement gives priority to a specific shareholder or shareholder); and it might be interesting to consider situations in which it is appropriate that, subject to negotiations by all parties involved, several shareholders benefit from other forms of equivalence than cash at a Along day sale. [4] This is important to the extent that the original definition of De Tag Along rights requires all participating parties to be subject to the same conditions and conditions, which implies that the form of consideration to be received from shareholders is uniform for all of these parties. For example, in the case of a standard tag-Along sale, majority and minority shareholders are compensated with the same amount of cash per share.