What are drag-along or bring-along rights?

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Drag-along or bring-along rights are provisions in a shareholder agreement, operating agreement, or other legal document governing a North Carolina company that allow a majority shareholder or group of shareholders to force minority shareholders to sell their shares along with the majority shareholders in the event of a sale or merger of the company.

In essence, drag-along rights give the majority shareholders the power to “drag” the minority shareholders along with them in a sale or merger transaction. This means that if the majority shareholders receive an offer to sell the company, they can require the minority shareholders to sell their shares as well, even if the minority shareholders do not want to sell or do not agree with the terms of the sale.

The purpose of drag-along rights is to provide a mechanism for majority shareholders to sell the company as a whole, rather than being blocked by minority shareholders who may not want to sell or who may hold out for a higher price. It can also help ensure that all shareholders are treated equally in a sale or merger transaction.

It’s important to note that drag-along rights can have a significant impact on minority shareholders, and should be negotiated carefully and with the advice of legal counsel. Minority shareholders may want to negotiate certain protections or conditions around the exercise of drag-along rights, such as a minimum price or a requirement for a supermajority vote.

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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