Drag-Along and Tag-Along Rights
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.What this means in practice
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.- •Setting a drag threshold so high (e.g., requiring common-stockholder supermajority) that a clean exit becomes structurally hard.
Related terms
Grouped by themeEditor's picks
· Hand-selected related conceptsTransactions in which one company acquires or combines with another, the dominant MedTech exit path, typically a strategic acquisition by an established player.
Class of equity with rights superior to common stock.
Non-binding outline of the key economic and control terms of an investment.
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Primary references
3 sources- 1
NVCA Model Legal DocumentsVerifiedNVCAnvca.org
- 2
Delaware General Corporation Law (Title 8)VerifiedDE Codedelcode.delaware.gov
- 3
PitchBook - MedTech CoverageVerifiedPitchBookpitchbook.com
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