A drag-along allows a selling majority to require minority holders to participate in a sale of the company.

Trigger. A threshold of holders approving a bona fide sale to an unaffiliated third party, sometimes with a board approval requirement and a minimum price.

What the minority is required to do. Sell on the same terms, vote in favor, waive appraisal rights, and execute the transaction documents.

Protections the minority should negotiate. The same form and amount of consideration per share subject to the waterfall; no obligation to give representations beyond title, authority and capacity; several rather than joint liability for indemnities; a cap on indemnity exposure at the proceeds received; no non-compete or non-solicit obligations imposed on a passive holder; and no requirement to fund an escrow disproportionately.

Affiliate sales. Excluded from the drag, or subject to a fairness requirement, since a drag exercised on a sale to the majority’s own affiliate is a freeze-out.

Notice and information. Sufficient notice and information about the terms to assess the transaction.

Fiduciary overlay. The majority still owes duties in exercising the drag, and courts have examined whether the process and price were fair notwithstanding compliance with the clause.