LEGAL
Raising Capital
Drag-Along Rights: When Minority Votes Don’t Matter
Drag-along rights allow majority investors to force minority shareholders to agree to a sale. While they streamline exits, they reduce minority control and can create tension if interests diverge.
Why it Matters
Drag-along rights let a majority of shareholders (usually preferred) force all other shareholders — including founders and employees — to go along with an acquisition.
They prevent holdouts that could block a sale, but they also reduce your ability to say no.
Founders Checklist
Review your drag-along clause in the stock purchase agreement
Understand who can trigger a drag (e.g., majority of preferred + board approval)
Clarify whether it applies to mergers, asset sales, or any exit
Confirm drag-along terms are included in founder and employee stock agreements
Communicate early with shareholders before exit events to build buy-in
Founder Fails
Didn’t realize their shares were drag-along bound > forced to sell
Forgot to include drag-along in employee option grants > legal delay in exit
Assumed drag-along needed everyone’s consent > blocked deal due to misunderstanding
When to ask for Help
Before signing term sheets including drag-along clauses
To ensure rights are structured to protect all parties
When reviewing how drag-along interacts with your equity plan
If revisiting rights as part of a recap or exit
To understand how drag-along terms apply in different sale scenarios
Frequently Asked Questions
Q: What are drag-along rights?
A: If the majority of investors and/or the board approve a sale, all shareholders must participate, even if some oppose it. This ensures a clean exit.
Q: Why do investors want them?
A: They eliminate minority veto power. Without drag-along rights, even a single shareholder could hold up an acquisition.
Q: Can I negotiate them?
A: Some founders negotiate for notice requirements, minimum price thresholds, or board override clauses. But drag-alongs are common in most priced rounds.
Q: Do drag-along rights override voting power?
A: Yes, in specific exit scenarios. Outside those cases, shareholders retain voting rights.