A drag-along provision is a contractual provision typically found in shareholder agreements or company bylaws that allows a majority shareholder or group of shareholders to force the remaining minority shareholders to sell their shares in a company under certain circumstances.
In a drag-along provision, the majority shareholders have the right to “drag” the minority shareholders along with them in a sale of the company or a sale of a significant portion of the company’s assets. This means that if the majority shareholders receive an offer to sell the company or a substantial portion of the company’s assets, and they decide to accept the offer, they can require the minority shareholders to sell their shares on the same terms and conditions as the majority shareholders.
The purpose of a drag-along provision is to prevent minority shareholders from blocking a sale of the company or a sale of a significant portion of the company’s assets by refusing to sell their shares. This provision can provide a level of certainty to potential buyers and help ensure that the company can be sold in a timely and efficient manner.