Add Tag-Along Agreement Countersign with airSlate SignNow

Add Tag-Along Agreement countersign

hey snapchat today I'm going to discuss two terms that are in almost every term sheet that almost no entrepreneurs understand the first term and probably the more important one for you to understand is called drag along rights effectively what dragged along rights do is allow you to sell your company even if you have small dissenting shareholders that don't want to sell the reason this is important is let's say Microsoft wants to buy your company and you have a shareholder that owns 8 percent and doesn't want to sell Microsoft doesn't want to buy 92 percent your company they want to either buy your company or not buy your company and that 8 percent can't become a hold up to your deal that's why you secure the right to drag investors and frankly a big investor like myself doesn't want to be held up by a small investor on a deal the critical thing for you as an entrepreneur to look at is what is the threshold that determines whether you can drag somebody sometimes I've seen investors use this as a way to actually block a transaction so as a founder you've fought really hard for investors not to have blocking rights on a deal only to find out that they legally have blocking rights that you didn't understand because you didn't understand drag along right let's say the threshold on drag long rights is set at 80 percent you need 80% approval of a deal in order to drag everybody else it's an individual shareholder then owns 22% of the company effectively you need their approval in order to get a deal done that's how they could blow I know most lawyers will tell you that people generally don't use drag along to block deals I've seen it happen and often they don't block the deal outright they use they're dragged along block to secure something for themselves in the deal that they want dragged along rights are nothing to be alarmed about they actually help you as an entrepreneur but at least understanding thresholds and who have rights is important the second related term that P talk about is a tag-along right tag-along rights allow investors if other investors are selling to be able to tag along with the sale of their stock this is not when your company is selling but when individual shareholders are trying to sell stuff it's generally designed to protect shareholders you want to know that if another major shareholder is trying to sell their stock you could sell in the same proportion tag-along rights aren't something that I've seen generally effect entrepreneurs but let me explain it so you at least understand occasionally an investor will become tired with a company and wants to sell that their stock to somebody if you feel this would be hostile to your interests as a shareholder why is he getting his money out or she getting it out and I you can exercise your tag and in doing so it actually makes it harder for individual shareholders who hold large ownership to sell their stuff it forces that shareholder more to work with other shareholders and with the company on an organized sale if they actually want to