Tag me or drag me

If you are about to sign up to a shareholders’ agreement, make sure you check to see if it contains clauses dealing with drag along and tag along rights. Put simply, if you had a two shareholder company, a tag along right allows you to ‘tag’ along with other shareholder who is selling their shares to a buyer. Drag along rights allow the other shareholder to ‘drag’ you with them on their sale to a buyer.  

Where a typical problem arises is upon a share sale when you are dragged along, if the share sale documents contain certain warranties you cannot give, you find yourself in a position where you can’t offer a warranty, but you are bound by the terms of your shareholders’ agreement.

If you would like to know more about this, please contact us on 3310 8716 or email to discuss your specific business requirements.