Fix effect in the Tag-Along Agreement effortlessly

Aug 6th, 2022
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How to Fix effect in the Tag-Along Agreement

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hi im 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 theyre going to treat each other its important to consider how to handle situations where youre either in the minority or youre in the majority in terms of the number of shares you have when you think about the exit so when Ive talked about the exit Im not thinking about the companies going public Im thinking about someone acquiring your company most of the time the acquire is going to buy the assets of your company thats 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 Im a shareholder in your company and I only own a third of the shares one of t

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Drag-along rights and tag-along rights are important forms of investment realisation in a shareholders agreement. Drag-along rights favour the majority shareholder while tag-along rights are more beneficial to the minority shareholder.
Tag along clauses are designed to protect the minority shareholders from being left behind when a majority shareholder decides to sell their shares. If a minority shareholder held 10% of the shares in a company, it would be difficult to sell as most buyers will want 100% of a company.
Tag-along rights are mainly used to ensure that the stake of minority stakeholders is considered during a company sale. Tag-along rights also provide greater liquidity to minority shareholders. The minority investors are entitled to the same price and conditions as the majority investor when the shares are sold.
Disadvantages of Controlling Interest Controlling shareholders leave little room for independent-minded directors to avoid losing their control of the organization. Controlling shareholders sometimes use their position to force minority shareholders out of the company.
Disadvantages of the right to tag along Moreover, tag along rights also affect the sale of the company when the potential buyer is reluctant to change the terms and conditions of the sale transaction to please the minority shareholder and is unwilling to buy their shares.
Minority owners generally do not have the right to address daily issues that the business confronts. The business may have a board of directors that are responsible for the direction and operation of the business. Minority owners do not generally have a right to make management decisions for the business.
On the negative side, drag-along rights can be considered a disadvantage to minor shareholders due to the lack of control and the potential for being forced into a sale that they may not want, or at a price and terms that they may not see as favorable.
Minority shareholders are often the most at risk of having their position abused either by fellow majority shareholders and/or directors/the management of a business. Shareholders who own 50% of a company or less, are deemed to be minority shareholders.

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