Tag-along rights

Tag-along rights (also called co-sale rights) protect minority shareholders — typically founders and early investors — from being left behind when a majority shareholder sells their stake. If a majority shareholder proposes to sell their shares to a third party, tag-along rights allow minority holders to participate in that sale, selling their shares proportionally on the same price and terms.

The protection is particularly relevant for founders who did not receive drag-along leverage. Without tag-along, an investor could sell a controlling stake to an acquirer who then has little incentive to provide a liquidity event for the remaining minority shareholders, effectively stranding them.

In Indian SHA practice, tag-along is typically granted to all shareholders or specifically to minority investors and founders. The mechanics work on a pro-rata basis: if a majority shareholder sells 30% of the company, each tag-along holder can elect to sell the same proportion of their own holding at the same price. The buyer must agree to purchase the tagged shares or reduce their purchase from the majority seller to accommodate the tag.

For founders, tag-along rights matter most in secondary sale scenarios — when an investor seeks to sell their stake to a new financial or strategic buyer. Founders with tag-along can participate in that liquidity event rather than being locked in while their investors cash out. The right is usually subject to a minimum threshold (a large enough sale) to avoid being triggered by small share transfers.