What is Co-Sale Rights?
Co-Sale Rights
Co-Sale Rights (also known as tag-along rights) allow investors to participate pro-rata in any stock sale initiated by a founder or major shareholder to a third party.
Why It Matters for Startups
Governs the legal rights and ownership distribution of the entity; configuring Co-Sale Rights is critical for managing long-term cap table health and alignment during shareholder agreement drafting and alignment protection.
Detailed Deep Dive
Co-Sale Rights protect minority investors by ensuring they are not left holding illiquid shares if key founders decide to exit the company early. These rights align incentives, forcing founders to stay committed to the long-term success of the business.
Frequently Asked Questions
Q:Why do investors request co-sale rights?
To prevent founders from selling their stakes and exiting the company before investors have had a chance to liquidate.
Q:How do co-sale rights work in practice?
If a founder sells 10% of their shares, investors with co-sale rights can sell a portion of their preferred shares on the same terms.
Quick Facts
- CategoryLegal
- Key ApplicationShareholder agreement drafting and alignment protection
Coverage Trend12 Weeks
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