What are co-sale or tag-along rights?

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Co-sale rights, also known as tag-along rights, are provisions in a shareholder agreement, operating agreement, or other legal document governing a North Carolina company that give minority shareholders the right to participate in a sale of the company’s shares by a majority shareholder.

In essence, co-sale rights allow minority shareholders to “tag along” with the majority shareholder and sell their shares on the same terms and conditions as the majority shareholder. This means that if the majority shareholder receives an offer to sell their shares in the company, the minority shareholders have the right to sell their shares as well, typically in the same proportion as their existing ownership stake.

The purpose of co-sale rights is to protect minority shareholders from being left out of a sale or being forced to sell their shares to a third party without their consent. Co-sale rights ensure that minority shareholders have the opportunity to participate in a sale of the company’s shares and receive the same benefits as the majority shareholder.

It’s important to note that co-sale rights can have limitations and restrictions, such as a minimum price or certain conditions that must be met before the co-sale right can be exercised. These restrictions are typically negotiated between the majority and minority shareholders and included in the shareholder agreement or other legal document.

Will Blackton is a business lawyer based in Raleigh, North Carolina. You can reach Will at wblackton@bobllaw.com or (919) 636-5979.

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