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Tag along rights (TARs) comprise a group of clauses in a contract which together have the effect of allowing the minority shareholder(s) in a corporation to also take part in a sale of shares by the majority shareholder to a third party under the same terms and conditions.[1]
Consider an example: A and B are both shareholders in a company, with A being the majority shareholder and B the minority shareholder. C, a third party, offers to buy A's shares at an attractive price, and A accepts. In this situation, tag-along rights would allow B to also participate in the sale under the same terms and conditions as A.
As with other contractual provisions, tag-along rights originated from the doctrine of freedom of contract and is governed by contract law (in common law countries) or the law of obligations (in civil law countries). As tag-along rights are contractual terms between private parties, they are often found in venture capital and private equity firms but not public companies.[2]
- ^ Weiner, Evan; Lee, Randall. "CONSIDERATIONS For Minority Equity Interest Owners" (PDF). Financial Executive. 25 (6): 55–57.
- ^ Lacave, Isabel Sáez; Gutiérrez, Nuria Bermejo (September 2010). "Specific Investments, Opportunism and Corporate Contracts: A Theory of Tag-along and Drag-along Clauses*". European Business Organization Law Review. 11 (3): 423–458. doi:10.1017/S1566752910300061. ISSN 1741-6205. S2CID 154553292.