When two or more parties enter into a business agreement, they may choose to include a tag along agreement as part of the terms. This type of agreement is designed to protect minority shareholders by giving them the right to “tag along” with majority shareholders if they decide to sell their shares.
A tag along agreement essentially states that if a majority shareholder decides to sell their shares to a third party, the minority shareholders are given the right to sell their shares at the same price and on the same terms as the majority shareholder. This allows minority shareholders to maintain their proportional ownership in the company and receive the same financial benefits as the majority shareholder from the sale.
There are a few key elements that are typically included in a tag along agreement:
– Triggering events: The agreement will outline the specific events or circumstances that will trigger the tag along provision. This might include the sale of a certain percentage of shares by the majority shareholder, the sale of the entire company, or other significant changes in ownership or control.
– Percentage of shares: The agreement will specify the minimum percentage of shares that the minority shareholders must collectively own in order to trigger the tag along provision. This will vary depending on the specific agreement and the preferences of the parties involved.
– Price and terms: The agreement will specify the price and terms of the sale, ensuring that the minority shareholders receive the same financial benefits as the majority shareholder.
– Process and timing: The agreement will also outline the process and timing for the tag along provision to be invoked, including any notice requirements or other procedural steps.
Overall, a tag along agreement can be a valuable tool for minority shareholders looking to protect their interests and maintain their proportional ownership in a company. By including this provision in a business agreement, both majority and minority shareholders can benefit from greater transparency and fairness in the event of major ownership changes.