Term sheet clauses
Also called co-sale rights
A tag-along right lets a minority shareholder join a sale being made by a majority shareholder, selling the same proportion of their holding on the same terms rather than being left behind.
Without a tag-along, a founder or large investor could sell their stake to a buyer and leave minority holders as shareholders in a company with a new controlling owner they did not choose, holding stock with no route to liquidity.
The right is triggered when a shareholder above a defined threshold proposes a sale. Other holders may then require the buyer to purchase the same percentage of their shares at the same price.
In venture financings the equivalent term is usually a co-sale right held by investors over founder share sales. It stops a founder taking secondary liquidity while investors remain locked in.
Tag-along is the mirror image of drag-along and the two are normally negotiated as a pair in the shareholders agreement.
Minority shareholders. It gives them access to the same liquidity event and the same price as the controlling holder who initiated the sale.
In practice yes. Venture term sheets usually call it a co-sale right, most often applied to founder share sales, and the mechanics are the same.
No. It does not prevent the sale; it changes its composition by requiring the buyer to take some minority shares alongside the majority holder's.
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