Tag-Along Rights

Tag-along rights are a contractual provision that lets minority shareholders join a sale on the same terms when majority or designated shareholders sell. Also called co-sale rights, the provision is typically found in stockholders' agreements and triggered when founders or other designated holders sell. It protects smaller holders from being left in the company after key shareholders have exited at a price they weren't given the opportunity to participate in. It is the structural counterpart to drag-along rights: drag-along protects majority holders from minority blocking; tag-along protects minority holders from majority leaving them behind.

The typical structure: tag-along is triggered when a defined holder (often the founders specifically, sometimes anyone above a threshold ownership) proposes to sell shares to a third party in a transaction that wouldn't trigger full company-wide drag-along. Other tag-eligible shareholders (typically the venture investors who negotiated the right) get the option to join the sale on the same terms (same price per share, same conditions, same proportional share of the offered transaction). If the tag is exercised, the original seller's transaction is reduced pro-rata to make room for the tag participants. Tag-along is most relevant in partial-sale scenarios where a founder might sell a portion of holdings to a strategic acquirer or new investor; without tag, the founder could exit while investors are left holding shares of a company that just lost its founder. Famous use cases: VC investors routinely include tag-along on founder stock to prevent founders from "cashing out and bailing" through secondary transactions that don't include investors. The 2010s rise of founder secondaries actually expanded the importance of tag-along provisions: as founder secondaries became normalized, the language defining when tag-along triggers became one of the most-negotiated provisions in stockholders' agreements.

What founders get wrong: Treating tag-along as just an investor protection without realizing it constrains founder partial-liquidity options. Tag-along provisions can effectively prevent founders from selling secondary stakes without bringing investors along on the same deal terms, which means a strategic-acquirer secondary that wants to buy founder shares specifically may not be doable without investor participation. Negotiate the carve-outs.

Related: Drag-Along Rights · Right of First Refusal · Acquisition · Secondary Sale

FAQ

What are tag-along rights?
A contractual provision (also called co-sale rights) that lets minority shareholders join a sale on the same terms when majority shareholders sell. Protects smaller holders from being left in the company after key shareholders exit at a price the minority weren't given the opportunity to participate in.

What is the difference between tag-along and drag-along rights?
Drag-along lets majority holders force minority to join a sale; tag-along lets minority holders force themselves into a partial sale that the majority initiated. Drag-along ensures clean 100 percent acquisitions; tag-along prevents partial sales that benefit the seller while leaving other shareholders behind.

Why does tag-along matter for founder secondaries?
Because tag-along provisions can force investors to be included in founder secondary sales, which can prevent or complicate founder-specific liquidity events. Modern VC-backed companies negotiate carve-outs for employee tenders (typically exempt) versus strategic-acquirer secondaries (typically not exempt).