What is Tag-Along Rights?

Tag-Along Rights, also known as co-sale rights, are a provision in a shareholders' agreement that protects minority shareholders. If a majority shareholder sells their stake, this right allows the minority shareholders to join the deal and sell their shares at the same price and terms.

Base Term for Startups: This right is important for early employees or angel investors. It ensures that if the founders decide to sell their shares and exit, the minority shareholders are not left behind with an illiquid stake in a company now controlled by a new, unknown party.

For Founders: While this is a standard right to grant, founders should ensure it is structured in a way that doesn't overly complicate a potential secondary sale of their shares.

Base Term Example: A founder who owns 40% of the company gets an offer to sell their shares to another firm. The tag-along rights allow an early employee with a 2% stake to "tag along" and sell their 2% stake as part of the same transaction.