Drag-Along Rights
Definition
A provision that allows majority shareholders (usually investors) to force minority shareholders (including employees) to sell their shares in a transaction approved by the majority. If investors with drag-along rights agree to sell the company, all shareholders must participate on the same terms.
Real-World Example
Investors holding 60% of shares approve an acquisition at $15/share. The drag-along provision forces all shareholders — including employees who may think the price is too low — to sell at $15/share. You cannot hold out for a better deal.
Common Mistake
Thinking you can refuse to sell your shares in an acquisition. If drag-along rights exist (they are standard in most startup equity plans), you cannot block a sale. You must sell at whatever price the majority approves.
Why It Matters
Drag-along rights mean you have no veto power over an exit. Understanding this prevents the unrealistic expectation that you can hold out for a higher price in an acquisition you disagree with.
Related Terms
Want to learn one equity concept per week?
Read the Newsletter