Tag Along Agreement Definition

There are several other ways to handle shareholder freezes and litigation, including: If you`d like to learn more about what`s normally covered by a shareholder agreement, check out our separate contribution here or check out our Shareholder Agreement FAQs. If you want more details, we recommend downloading our complete guide. In some companies, no shareholder or group owns 51% or a clear majority of the shares, and so the application of the Tag Along law can become questionable if it is not clear what is considered a majority. He cannot intervene if they had to; It is therefore always advisable to mention the exact definition of majority. Sometimes 30% of shares can also become a majority. In addition, those conditions should be continuously monitored in the light of a change in the participation model. Tag Along clauses are intended to protect minority shareholders from being abandoned when a majority shareholder decides to sell their shares. If a minority shareholder owns 10% of a company`s shares, it would be difficult to sell, as most buyers want 100% of a company. This may force minority shareholders to sell their shares at a price that is significantly lower or disproportionate to the real value of the company. In the absence of noon rights, minority shareholders may find that they hold non-valuable or devalued shares. A right of participation is a provision or clause in an agreement allowing a majority shareholder to compel a minority shareholder to participate in the sale of a business.

The majority owner who conducts the traction must give the minority shareholder the same price, conditions and conditions as any other seller. Tag Along rights are not always useful to the management or majority shareholders of the company. These rights could make it more difficult to negotiate liquidation transactions. If the investor wants to buy a certain number of shares and knows that he must also buy minority shares, he can offer another price or condition. Using tag along rights is a good way to provide legal and financial protection to employees and small investors. As with other contractual clauses, the exact wording of the Tag Along right would be reviewed by the courts to determine its enforceability. In Silk Stickers v. Gasparilla Inn, Inc., No.

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