A tag-along entitles a minority holder to sell alongside the majority on the same terms, preventing the majority from exiting and leaving the minority with a new and unknown partner.
Trigger. A proposed transfer by the majority, or by holders above a threshold, to a third party. Transfers to affiliates and estate planning transfers are commonly excluded, and the exclusions should be drawn narrowly.
Full or pro rata. A pro rata tag allows the minority to sell the same proportion of its holding as the majority is selling. A full tag allows it to sell everything, which is stronger and harder to obtain.
Terms. The same price per unit subject to the waterfall, the same form of consideration, and no greater obligations than the selling majority undertakes.
Procedure. Notice of the proposed transfer with the terms; an election period; and a prohibition on completing the transfer unless the buyer takes the tagging shares.
Interaction with rights of first refusal. Where both exist, the sequence must be specified — usually the refusal right runs first, and if not exercised, the tag applies.
Enforcement. A provision that a transfer in breach is void and will not be recorded on the register, which is more effective than a damages claim.