Drag along

Drag-along right: enables a majority shareholder to require that a minority shareholder vote to approve a sale of the company to a third party. This right is often negotiated by investors and is based on the idea that a majority shareholder may not be able to recognise the full value of the investment, unless the majority shareholder can sell the entire company to a third party by “dragging” along minority shareholders. Drag-along provisions typically provide that the minority shareholders receive the same terms in the sale as the majority shareholder. Founders, who are usually minority shareholders, may be resistant to granting these rights because they can enable investors, who usually have a liquidation preference, to negotiate sales where the investors benefit and the minority shareholders do not.