Tag along and drag along in the shareholders' agreement

Tag along and drag along are two indispensable exit clauses in a shareholders' agreement. Tag along (right to sell shares) protects the minority: if the majority sells its shares, the minority may join in, under the same conditions. Drag along (obligation to sell shares) protects the majority: in the event of an acquisition, the majority can force the minority to sell their shares along with the majority, so that one stubborn shareholder does not block a deal. Sounds contradictory, but they belong together.

Years later, Bram and Joris received a serious takeover bid for their private limited company — but one of the future shareholders, Mark, held 8% and stood his ground: he did not want to sell. There was no drag-along clause in the shareholders' agreement, so the entire deal hinged on Mark's mood. It cost them three months of negotiations and a discount of €80,000 on the offer. A drag-along would have spared them that misery.

The short answer

Tag along and drag along control what happens when a shareholder sells their stake to a third party:

• Tag along: the other shareholders may co-sell under the same conditions. Minority protection.
• Drag along: the majority can force the other shareholders to sell along. Majority protection and exit accelerator.

Both clauses together ensure that an exit proceeds in an orderly manner and without hostage-taking — in both directions.

Tag along explained

A tag-along right (also known as a co-sale right) gives a minority shareholder the right — not the obligation — to piggyback on a sale by the majority. Specifically: if the majority shareholder sells their shares to an external buyer, the minority receives an offer to sell under the same conditions.

Why is that important? Suppose you own 10% of a private limited company (BV), and your co-shareholder sells 90% to a large party. Without a tag-along clause, you, as a minority shareholder, are suddenly saddled with an unknown majority owner. With a tag-along clause, you say: you sell, I sell along, for the same price per share.

The clause is often structured proportionally: if the majority sells 50% of its stake, the minority may sell 50% of its stake along with it. A “full tag along” grants the right to sell all of its shares, regardless of how much the majority wishes to sell.

Drag along explained

A drag-along (compulsory sell or compelled sale) is the reverse clause. If a majority of, for example, 75% or more wants to sell to an external party, they can force the remaining shareholders to sell along under the same conditions.

Why is that important? Many acquisitions only take place if the buyer can purchase 100% of the shares — an investment fund rarely wants 92% and an annoying minority stake. A drag-along ensures that a single stubborn shareholder cannot force an €80,000 discount by being obstructive. The legal scope for such agreements can be found in Book 2 of the Dutch Civil Code.

Default parameters in a drag-along clause:

• Threshold: from what percentage of the shares can drag be invoked? Customary: 75% or 80%.
• Equal conditions: the minority must receive exactly the same conditions as the majority — no lower price.
• Minority protection: limited liability for the dragged-in shareholder; no unlimited guarantees towards the buyer.
• Deadline: within what time must the transaction be completed?

The interplay: why you need both

Tag along without drag along is an invitation for blockades by the minority. Drag along without tag along is an invitation for the majority to sell at a low price and leave the minority out in the cold. That is why they always belong together—as mirrored clauses that ensure a fair exit, regardless of which side you are on.

The full content of a shareholders' agreement, including these two clauses, is stated in what is stated in a shareholders' agreement.

Common pitfalls

Five mistakes we often see in practice:

• Unclear trigger. “Upon sale” is too vague. What falls under it — only external sale, or also transfer to a family member, a holding company, or a trust?
• Unequal terms. The buyer offers 80% cash and 20% in earn-out to the majority; the minority receives only earn-out. That is not “equal terms” — ensure the clause prohibits this.
• Unlimited warranties. The dragged-in minority shareholder must not be held liable without limit for warranties towards the buyer — limit this pro rata.
• Missing link with other clauses. The tag along must work in conjunction with the offer obligation (otherwise you end up with a duplicate process). The drag along must align with the leaver arrangements.
• No time limits. A tag-along that must be exercised “within a reasonable time” leads to disputes. Specific days added: 14, 30, or 60 days.

Tag/drag along at different share ratios

The correct interpretation depends on who is sitting where at the table:

• 50/50 BV: tag along is less relevant (no “true” majority), but drag along on joint decisions is useful. Many couples combine this with a veto right on major decisions.
• Majority + minority (e.g., 70/30): classic setup. Tag along protects the 30% shareholder; drag along protects the 70% shareholder in the event of an exit.
• Many small shareholders: in this case, drag along is primarily a tool to get everyone on board during an acquisition. Tag along ensures that no one is left behind.
• Investor + founders: the investor almost always wants both tag and drag along — often with a veto right on a sale below a minimum price.

Honest recommendation

Tag along and drag along seem simple — two sentences, nothing to it. Until you start formulating them. Threshold percentages, equal terms, linking with other clauses, guarantees for the buyer, time limits: every element makes the difference between “we’ll work it out” and “it will cost us dearly after three months”.

To ensure proper alignment with your BV — and consistency with the rest of the shareholders' agreement — engage a lawyer with experience in corporate law. Explore the options for having your shareholders' agreement drafted or reviewed. For broader context: what is a shareholders' agreement.

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