Tag-Along Rights

Tag-along rights (also called "co-sale rights") protect minority shareholders by giving them the right to participate in any sale of shares by a major shareholder. If a founder or large investor sells their stake, tag-along rights allow smaller shareholders to sell a proportional amount of their shares on the same terms.

These rights prevent a scenario where controlling shareholders sell their position to a new party, leaving minority shareholders stuck with a new (potentially unfriendly) majority owner. Without tag-along rights, a founder could sell their shares to a buyer who has no obligation to offer the same deal to other shareholders.

Tag-along rights are the counterpart to drag-along rights, and most venture deals include both. Where drag-along rights protect the majority by preventing holdouts, tag-along rights protect the minority by ensuring they can exit alongside the majority. The practical effect is that any significant share sale must accommodate all shareholders proportionally.