What Are Tag Along Rights?
Tag Along Rights — also called co-sale rights — give minority shareholders the right to join a transaction when a majority shareholder sells their stake.
In plain terms: if a founder sells shares to an investor or acquirer, the minority shareholder has the right to sell their shares in the same deal, on the same terms, at the same price.
They cannot be forced out or left behind.
Why This Matters
Imagine an angel investor holds 8% in your company. You, as founder, decide to sell 40% to a strategic buyer at ₹500 per share.
Without Tag Along Rights, the angel investor has no automatic right to participate in that sale. The buyer may not want to deal with a minority shareholder. The angel is stuck.
With Tag Along Rights, the angel investor can require you to include their shares in the deal — at the same ₹500 per share.
How It Works in Practice
A standard Tag Along clause in an SHA typically includes:
Trigger: A proposed transfer of shares by a founder or majority shareholder to a third party.
Notice requirement: The selling shareholder must notify minority shareholders of the proposed deal — price, terms, and timeline — typically 15 to 30 days before closing.
Exercise window: Minority shareholders have a defined window (usually 15 days) to elect to participate.
Pro-rata participation: The minority shareholder can sell in proportion to their holding. If they hold 8% and the deal involves 40% of total shares, they can tag along with 8/40th of the deal.
Same terms: Same price per share, same payment structure, same closing date. The minority cannot be offered inferior terms.
Tag Along vs Drag Along — The Difference
These two clauses are often confused.
Tag Along protects minority shareholders — they can join a sale if they choose to.
Drag Along protects majority shareholders — they can force minority shareholders to sell if a majority approves the deal.
Both are standard in well-drafted SHAs. They work together.
What MOJAA Recommends
Before signing any SHA, verify:
- Is the Tag Along clause present? Many early-stage SHAs skip it.
- What is the trigger threshold? Some SHAs only trigger Tag Along above a certain percentage sale.
- Is the notice period reasonable? Fifteen days is the minimum we recommend.
- Are the terms clearly defined — same price, same structure, no carve-outs?
- Does it cover all share classes or only equity shares?
If you are an early investor or ESOP holder, Tag Along Rights are non-negotiable. If you are a founder, including them builds trust with your early backers.
If you are reviewing an SHA or term sheet and need a compliance and financial lens on the clauses, send me a direct message.
Mayank Jain | Chartered Accountant | Mayank Om Jain & Associates