Drag-along rights

Drag-along rights give a defined majority of shareholders the power to require all other shareholders — including dissenting minorities — to sell their shares in a company acquisition on the same price and terms. The rationale is to prevent a small minority from blocking a sale that the majority wants to proceed.

Without drag-along, a single minority shareholder could hold out in an acquisition, demanding a premium for their consent or simply refusing to sell, effectively giving them veto power over the entire deal. Drag-along rights eliminate this holdout problem, making the company more acquirable and increasing its attractiveness to strategic buyers who need 100% of shares to complete a transaction.

In Indian SHAs, drag-along is typically exercisable by investors once they cross a shareholding threshold — commonly 50–75% of total shares on a fully diluted basis. The provision requires that all shareholders receive the same per-share price and terms (the pro-rata principle), and usually contains minimum protections: the drag price must be at or above the investor's liquidation preference or original investment cost.

For founders, drag-along can work both ways. An investor-heavy cap table with a low drag threshold means investors can force a sale the founders oppose. Conversely, if founders hold sufficient shares or if drag rights require founder consent, they retain a meaningful veto. Founders should negotiate the trigger threshold, minimum price floors, and whether founder consent is required before drag can be exercised.