Rights & consent
Drag-Along vs. Tag-Along Rights
One clause can force you into a sale; the other lets you join one you'd otherwise be excluded from.
These two clauses sound similar but do opposite things. A drag-along clause lets a defined majority of shareholders (often preferred holders) force everyone else — including a small angel holding common stock — to sell on the same terms when the majority approves an acquisition. A tag-along clause runs the other direction: it lets a minority holder join a majority holder's sale on the same terms, instead of being left behind.
Both matter for the same reason: without them, a minority common holder could either be stuck unable to sell when everyone else exits, or forced to sell on terms they had no say in.
How it works
- Drag-along: a defined threshold of shareholders (set in the company's governing documents) approves a sale of the company; every other shareholder is then contractually required to sell their shares on the same terms.
- Tag-along: when a major shareholder arranges to sell some or all of their stake, minority holders with a tag-along right can elect to sell a proportional slice of their own shares in the same transaction, at the same price.
- Both rights (or their absence) are set in the company's charter, bylaws, or a shareholders' agreement — not something an individual angel can add after the fact without company and other shareholders' agreement.
Worked example
Drag-along: majority preferred holders approve a company acquisition at $4.00/share; an angel holding common stock is contractually required to sell too, even though they'd have preferred to hold. Tag-along: a founder privately arranges to sell 20% of their own stake at $6.00/share to an outside buyer; an angel with a tag-along right can join and sell a proportional slice at that same $6.00/share.
- Drag-along outcome
- Angel sells at $4.00/share, whether they wanted to or not
- Tag-along outcome (if right exists)
- Angel can sell a slice at $6.00/share alongside the founder
- Tag-along outcome (if right does NOT exist)
- Angel is left holding stock while the founder cashes out at $6.00/share
Why it matters: Drag-along protects the majority's ability to close a company-wide sale; tag-along protects the minority from being left behind when an insider sells. Check your own documents for which (if either) applies to your stake.
Watch out for
- Standard angel-round documents don't always include a tag-along right for the angel specifically — it's more commonly negotiated by larger institutional investors, so check rather than assume you have it.
- A drag-along threshold that's set low (e.g., simple majority of preferred) gives a small group significant power to force a sale price on everyone else — worth knowing before you invest, not just before you sell.
- These rights are separate from ROFR — a deal can clear ROFR entirely and still be shaped by a drag-along or tag-along clause.