tagalongrätt

Tagalongrätt is a Swedish term that translates to "tag-along right." It is a contractual provision found in shareholders' agreements, particularly in private companies, that protects minority shareholders. The core purpose of a tagalong right is to ensure that a minority shareholder is not left behind if a majority shareholder sells their stake.

When a majority shareholder receives an offer from a third party to purchase their shares, a tagalong right allows the minority shareholder to "tag along" with the majority shareholder and sell their own shares to the same third party on the same terms and conditions. This means the minority shareholder can exit the company under the same favorable circumstances as the majority shareholder.

The mechanism typically involves the majority shareholder notifying the minority shareholder(s) of the offer received. The minority shareholder then has a specified period to decide whether to exercise their tagalong right. If they choose to do so, the third-party buyer is then obligated to purchase the shares from both the majority and minority shareholders proportionally.

Tagalong rights are a crucial tool for minority investors as they mitigate the risk of being trapped in a company with a new, potentially unwanted, majority owner. They provide a degree of liquidity and offer a way to exit an investment alongside the lead investor. The specific terms and conditions of tagalong rights can vary significantly depending on the negotiated terms of the shareholders' agreement.