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Drag Along Rights In Shareholders Agreement

Global Med-Biz Creator

Drag Along Rights In Shareholders Agreement

In small and medium-sized enterprises, large shareholders sometimes want to make sure that they can sell their shares and that a minority shareholder cannot stop the sale. The main shareholders may be the people who have invested the financing in the company and want to be sure that they can withdraw if a good offer is made for the company. To this end, a “towing clause” is often included in a partner`s contract or in the articles of association. It may be preferable to have this provision in a shareholders` agreement, as it is not then an authentic instrument. First, it increases the market capacity of the participating company by providing a target company with no minority stake (buyers may not be willing to participate in a joint venture structure with a heterogeneous group of minority shareholders with different interests). This is done on the basis that they might be forced to exchange their current stake for shares in an unknown company, where exit possibilities are even more limited, for example. B if the governance regime of the new company provides for a general prohibition on transfers of shares or does not provide for day rights along. Minority shareholders, when in a strong negotiating position, can maintain a minimum price level so as not to be underestimated – for example, if the majority shareholder becomes insolvent and sells its assets on a fire sale basis. Participation rights are mainly used when a buyer wants to acquire 100% of the company and if the majority shareholder wants to have full control of the minority shareholders in the event of a sale. The goal of Drag Along Rights is to offer liquidity, flexibility and a simple way out to a majority shareholder…