Does tag-along apply if we sell the whole company?

No — that's covered by drag-along and liquidation preference. Tag-along applies to partial secondary sales while the company continues to operate.

Can founders sell without triggering tag-along?

Only for transfers below the threshold, to family members, or in structured estate planning. Any meaningful secondary sale triggers tag-along.

What if tag-along holders don't participate?

The founder proceeds with the full sale to the external buyer. Non-participation is common — many holders prefer to wait for a full exit rather than partial liquidity.

Tag-Along Rights (Co-Sale): How They Protect Minority

Tag-along rights let minority shareholders join sales that majority shareholders negotiate. Here's how they work and why they're standard.

Tag-Along Rights: Minority Shareholder Co-Sale Protection

A tag-along right (also called co-sale) lets minority shareholders participate proportionally in any sale that majority shareholders negotiate. Without it, founders could sell their stake in a secondary transaction while leaving minority holders with no exit option.

How tag-along works

When a founder or major shareholder receives an offer to sell shares, tag-along holders (typically preferred shareholders) have the right to sell their proportional share in the same transaction on the same terms. The seller must reduce their sale amount to accommodate participating tag-along holders.

Standard structure

Applies to: founder secondary sales, major shareholder exits, any transfer above a threshold (e.g., 1% of outstanding shares). Exempted: transfers to family members, estate planning transfers, transfers below the threshold. Tag-along holders have 15-30 days to decide.

Interaction with pro-rata and ROFR

Right of first refusal (ROFR) typically comes first: the company or existing shareholders can buy the shares before external buyers. If ROFR isn't exercised, tag-along kicks in: eligible holders can join the sale. Pro-rata is separate and applies to primary issuances, not secondary transfers.

Founder considerations

Tag-along is standard and reasonable — accept it. Watch for: overly broad triggers (any transfer, not just meaningful sales), aggressive participation formulas, or tag-along that applies to option exercises and estate transfers. Reasonable exceptions preserve founder flexibility while protecting minority holders.

Frequently asked questions

Does tag-along apply if we sell the whole company?: No — that's covered by drag-along and liquidation preference. Tag-along applies to partial secondary sales while the company continues to operate.
Can founders sell without triggering tag-along?: Only for transfers below the threshold, to family members, or in structured estate planning. Any meaningful secondary sale triggers tag-along.
What if tag-along holders don't participate?: The founder proceeds with the full sale to the external buyer. Non-participation is common — many holders prefer to wait for a full exit rather than partial liquidity.

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