Minority shareholders, especially when they participate in the management of the company, do not have these resources. A towing of the right allows a majority shareholder of a company to force the remaining minority shareholders to accept an offer to purchase the entire company by a third party. The majority shareholder who “trails” the other shareholders must offer minority shareholders the same price and conditions as those offered to the majority shareholder. For example, a majority shareholder who owns 75% of the company`s shares and agrees to sell their shares to a potential buyer in a share sale must offer minority shareholders the same price for the shares if they want to “drag them in”. A towing clause will allow the majority shareholder to drag the remaining minority shareholders with him and force them to sell their shares at the same price to the potential buyer so that the buyer can buy the entire company. We will briefly discuss the value of adding Tag Along and Drag-Along clauses to protect certain shareholders. The investor is technology-oriented and has important relationships with some of the major publicly traded technology companies. The co-founders of start-ups know this and therefore negotiate Tag Along rights in their investment contract. The business continues to grow over the next three years, and investor Angel, satisfied with his return on investment on paper, is looking for a buyer of his equity among the big tech companies. For example, two founders of a company, each representing 50% of the total shares, may agree to sell 75% of their stakes to an institutional investor (for example.
B a business angel, venture capital funds or private equity funds). In this way, they would come up against the way in which the operation is managed by (almost) controlling positions of minority shareholders with much less influence. The main purpose of the clause is to protect the company`s weak-controlled minority shareholders from a new controlling investor who could alter activities to the detriment of the minority. The first option may expose minority shareholders to the risk that the majority shareholder may obtain a near-total economic exit by selling a significant majority stake (but not the entire stake), without triggering the Tag Along provisions.