Initials Tag-Along Agreement Made Easy

Signature tag along agreement

hi i'm matt crowley this particular webinar is going to be on tag along and dragged along rights this will be a short one but it will be pretty important so for shareholders that are entering it either a buy sell agreement or perhaps an investor rights agreement or just an agreement among their co-founders on how they're going to treat each other it's important to consider how to handle situations where you're either in the minority or you're in the majority in terms of the number of shares you have when you think about the exit so when I've talked about the exit I'm not thinking about the companies going public I'm thinking about someone acquiring your company most of the time the acquire is going to buy the assets of your company that's the reality but in the event that you managed to sell you the company and the buyer wants to buy the stock or the membership interests whatever form of equity you have if I'm a shareholder in your company and I only own a third of the shares one of the things that I'm gonna worry about is what happens is Google comes to buyer a company and they're more than happy to you by 67 percent of the company or 51 percent of the shares as the 33% shareholder I might get left behind I'm very worried about that in a situation like that I would like what's called a tag-along rate and the basics of the technolon right are if the majority shareholders get an offer from an acquirer to buy their shares they would agree in the contract clause that they are prohibited from selling their shares unless they can get the buyers to also buy 100 percent of this year's or at least the minority that has this right and that way would be called a tag-along right the minority wants to tag along with the majority now the majority is going to want something turn for granting a tag-along right because obviously if I don't succeed 7% of the company I really would rather not give the right to a minority to stop me from being able to sell my shifts so the majority might be willing to make a trade they might want what's called a drag along right a drag along right means if Google makes an offer to buy all of the stock of our company they make an offer the sell to bide our company for ten million dollars however you're in the minority you own a third of the company and you're crazy you think that the company's worth a billion dollars and we're selling to assume that may be a reality but if the majority thinks that's a good deal the majority would like to be able to drag you along and say if a majority of the shares or 67% whatever will present you agree on decide that they would like to sell their shares that the minority agrees for that contract clause that they will be required to sell their shares so normally you won't see a tag long without a drag along they balance each other out but now you know what a tag-along rate is and what a drag along rate is and how the negotiation between you and your partner's may go so next up we'll be talking about other co-founder rights Thanks