Corporate Buy-out: DRAG-ALONG Arrangements
Corporate Buy-out - Selling Shares - Forced to Sell - Buying out Shareholders - Buying into Company
Contact Neufeld Legal PC at 403-400-4092 / 906-616-8864 or Chris@NeufeldLegal.com
A drag-along clause enables a majority shareholder (or a specified group of majority shareholders) to force minority shareholders to sell their shares in the corporation on the same terms and conditions as the majority shareholder(s) are looking to sell their shares.
The operative goal of a drag-along clause is to ensure that a prospective buyer can acquire one hundred percent (100%) of the corporation's shares if the appropriate contractual pre-conditions have been satisfied. This is crucial for potential buyers who want full control of the corporation and don't want to be left with a fragmented ownership structure or a potentially uncooperative minority shareholder.
The drag-along clause takes effect when a third-party buyer makes an offer to a majority shareholder (or a specified group of majority shareholder) that they are prepared to accept, such that the drag-along clause gives the majority shareholder(s) the right to effectively "drag" or compel the minority shareholders to join the sale. The minority shareholders are required to sell their shares to the third-party buyer at the same price and on the same terms and conditions as the majority shareholder(s).
A drag-along clause is form of protection for majority shareholders, as it provides a clear exit strategy for those majority shareholders, making it easier to sell the company without the risk of a minority shareholder blocking the deal.
A drag-along clause also has a protective element for minority shareholders, even though it may appear disadvantageous, as it ensures the minority shareholders receive the same price per share and are not left behind or subject to a lower offer after the majority shareholders have sold their shareholding in the corporation to the third-party purchaser.
For knowledgeable and experienced legal representation when initiating, or being subjected to, a corporate buy-out, contact corporate business lawyer Christopher Neufeld at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.
