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Investment & Finance

Drag-Along and Tag-Along Rights

In one line

Stockholder agreement provisions that compel minority holders to join a sale (drag) or entitle them to participate pro rata in a major holder's sale (tag).

Definition

Drag-along rights allow specified majority stockholders (typically the board plus a preferred-stock supermajority) to compel minority stockholders to sell their shares on the same terms in a qualifying sale of the company, ensuring a buyer can acquire 100% of the equity. Tag-along (co-sale) rights give minority stockholders the right to participate pro rata in a large stockholder's sale to a third party, preventing founders or early investors from cashing out at a price the smaller holders cannot access. Both are standard NVCA-form provisions.

Why it matters

MedTech founders should understand drag thresholds carefully; they determine who must agree to a sale. Tag-along rights are especially important to early angels and seed investors.

Common pitfalls

•Setting a drag threshold so high (e.g., requiring common-stockholder supermajority) that a clean exit becomes structurally hard.

Sources

NVCA Model Legal Documents · NVCA
Delaware General Corporation Law (Title 8) · DE Code
PitchBook - MedTech Coverage · PitchBook

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