Tag-along Right

Shares in a private company are hard to sell because there is no market to sell them into. A trade happens only when someone wants to buy the company, and what that buyer wants is control. Acquire 60 percent and you can run the business, so there is no particular reason to also buy the five percent stakes held by everyone else.

Which produced a recurring situation. A founder sells half of their holding at a good price and steps back, while the shares held by the angel investors who came in early and the employees who were granted stock stay exactly where they are. Those shares aren't worthless, but nobody is buying them. The new majority owner pays no dividends and has no plan to sell the company again. An asset sits on paper with no route to cash, sometimes for years, and the people holding it have no say in when that changes.

An investor who lives through that once asks for a clause in the next agreement: when the majority holder sells, let us come along on the same terms. Since it became standard, investors often check this clause before they check their percentage, because when a stake can be turned into cash matters as much to its value as how large it is.

The right operates as a procedure. Once a majority holder agrees to sell to a third party, they have to disclose it to the other shareholders and offer them the chance to participate on identical terms. The obligation sits on the seller, not on the holder of the right.

1. Notice. The selling shareholder states in writing who the buyer is, how many shares are changing hands, at what price, and on what terms. The timing varies by agreement; 30 days before closing is common.
2. Election. Shareholders who receive the notice have a fixed window — usually 15 days — to say they want in. No answer counts as declining, which is why the notice goes out by a method that can be proven later rather than by email alone.
3. Allocation. The buyer wants a fixed number of shares, so if more sellers join, everyone's share of the sale is cut in proportion to their ownership. A majority holder with 60 percent trying to sell it all, joined by a shareholder holding 20 percent, sells 45 percent while the joining shareholder sells 15 — assuming the buyer still wants only 60.
4. Matching terms. Not just price: when the money arrives, and how much liability each seller carries if something turns out to be wrong with the company. Cash for the majority holder and acquirer stock for everyone else is not the same terms, and neither is a deal where only the minority sellers are asked to leave money in escrow.

The clause also has to define its own scope — what size of sale triggers it, which transfers are excluded (gifts to family, inheritance, moves between affiliated entities), and how it sequences against a right of first refusal, which gives existing shareholders the chance to buy first. Without those lines, a majority holder can sell in small slices and stay under the trigger every time.

The right comes up in three places.

1. Writing the investment agreement. An investor taking a minority stake asks for it while the rest of the preferred stock terms are being set. Priority in dividends or liquidation covers the case where the company fails; this clause covers the case where it succeeds and gets sold. Whether employees holding common stock get the same protection differs from company to company.
2. A founder selling part of their stake. The clause fires most often in a secondary sale, where the company isn't changing hands but one shareholder is cashing out. The company carries on, only the seller moves — and skipping the notice is a breach, which can unwind a closed transaction months later.
3. Negotiating a sale of the company. Buyers usually want 100 percent. So in practice this right and its opposite-facing counterpart operate together and the deal ends up as a full sale. That is why counsel rereads the shareholders' agreement from the top when an exit is being prepared.

"Put a tag-along in this agreement. Without it our stake is trapped."

With no way out when the majority sells, there is no route to a return.

"If it's a founder secondary, the tag-along notice goes first. That's 30 days."

The notice period has to be built into the deal timeline.

"Three shareholders elected to participate. After allocation the majority holder is down to selling 45 percent."

Participants joining reduces what the original seller gets to sell.

Pagedeck's Series A agreement includes the clause. If Grace sells part of her holding, the angels from the pre-seed round and employees holding stock can participate at the same price. The trigger was set at any sale of 10 percent or more.

The threshold exists because a clause that fires too easily puts a month of notices and elections around every small transaction. Set it too high, though, and selling 9 percent three times becomes the workaround — so the agreement also aggregates sales within any 12-month period. Both numbers came out of the investors' own experience rather than a template.

The first assumption is that holding this right means you can sell whenever you want. It sounds like a right to sell. But the clause only switches on when a majority holder sells. While nobody is trying to buy the company it does nothing at all, and if the business runs well and no one ever sells, it can sit unused for a decade. Mistake it for a liquidity mechanism and you skip the device that actually provides one — a redemption right with a date attached, or a stated plan to list. Those are the clauses that create an exit on a schedule; this one only makes sure you aren't left behind when somebody else takes theirs.

The second is reading it as symmetrical with its counterpart clause. The names and the triggering events look like a matched pair. But one protects minority holders and the other is a tool for the majority to force a sale through. With both in an agreement, a minority shareholder can join a sale the majority starts and can also be required to sell when the majority decides to. Wave the pair through as one item and you sign without knowing which half you gained and which you gave up.