What is a Tag-Along Rights?
Tag-Along Rights
Tag-Along Rights (co-sale rights) are legal protections for minority shareholders that allow them to join in a transaction if a majority shareholder sells their stake.
Why It Matters for Startups
Governs the legal rights and ownership distribution of the entity; configuring Tag-Along Rights is critical for managing long-term cap table health and alignment during shareholder protection agreements.
Detailed Deep Dive
Tag-Along Rights (also known as co-sale rights) are legal protections for minority shareholders that allow them to join in a transaction if a majority shareholder (usually a founder or major investor) sells their stake to a third party. This ensures that minority shareholders can sell their shares on the same terms and at the same price as the major shareholders, preventing them from being left behind.
Frequently Asked Questions
Q:What is the purpose of tag-along rights?
They ensure that minority shareholders (like early employees or angels) can liquidate their holdings on the same terms as major founders or VCs.
Q:When do tag-along rights apply?
When a key founder or major investor sells a significant portion of their stock to an outside buyer.
Quick Facts
- CategoryLegal
- Key ApplicationShareholder protection agreements
Coverage Trend12 Weeks
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