Drag-along rights are a contractual provision that allows majority shareholders to force minority shareholders to join a sale of the company on the same terms. Typically found in stockholders' agreements, voting agreements, or investor rights agreements, the clause binds minority holders to the same price per share, indemnification obligations, and escrow participation, removing the ability of small holders to block an acquisition and ensuring the buyer can acquire 100 percent of the company in a clean transaction. It is one of the most-important and most-overlooked provisions in early-stage financing documents, and the one founders often discover the implications of years later at exit.
The typical structure: a drag-along...