Drag-Along Rights in the Spotlight

When Football Headlines Meet Deal-Making Basics

It is not every day you see mainstream sports headlines diving into drag-along rights – a concept that is usually the bread and butter of corporate lawyers. Based on press reports, Manchester United’s ownership structure includes a drag-along clause, activated 18 months after Sir Jim Ratcliffe’s investment that now gives the Glazer family the ability to require Ratcliffe to sell his stake if they receive an acceptable offer for 100% of the club. In other words, if the Glazers decide to sell, they can compel Ratcliffe to exit on the same terms. It is a timely reminder of how powerful drag-along and tag-along rights can be in shaping high-stakes transactions.

And these provisions are not just for the second most valuable football club in the world, they are common in shareholder agreements, investment deals and joint ventures across all sectors. Understanding them is essential for founders, investors and anyone involved in corporate transactions.

What Are Drag-Along Rights?

A drag-along right allows majority shareholders to compel minority shareholders to sell their shares alongside the majority when the company is sold (typically on the same terms and conditions). This mechanism ensures that a buyer can acquire 100% of the company and majority sellers can achieve an exit without being blocked by minority hold-outs.

Why does this matter?
Buyers often want full control. Without drag-along rights, a minority shareholder could refuse to sell, potentially blocking the deal or demanding extra benefits to agree. 

Key Features of Drag-Along Rights:

• Clean Exits: Majority shareholders can deliver the entire company to a buyer.
• Equal Treatment: Minority shareholders normally receive the same price and terms as the majority (although this is up for negotiation, normally in the relevant company’s articles of association) save that ‘dragged’ minority shareholders will often insist that they shouldn’t be required to provide contractual protections to buyers in the form of warranties (save for limited fundamental assurances). 
• Negotiation Levers:
  • Thresholds: Commonly set at somewhere between 66% to 75% of shareholding but this can be lower depending on the specific structure and bargaining power of the parties.
  • Valuation Rules: How the price is determined, typically the same as majority.
  • Interaction with Right of First Offer (ROFO): Commonly included in shareholders’ agreements, a ROFO (a.k.a. a pre-emption right on transfer) gives existing shareholders the first opportunity to purchase shares before they are offered to an external buyer. If a company’s articles or shareholders’ agreement are silent on drag rights, ROFO (if included) may take precedence over drag-along rights, potentially restricting a majority shareholder’s ability to deliver a clean exit. This should be addressed expressly in the shareholders’ agreement.
  • Costs: Should minorities who are ‘dragged’ into a sale be compelled to bear their pro rata proportion of transaction costs?
  • Power of attorney: Drag-along provisions are often capable of operation by way of a power of attorney allowing transaction documents to be executed on behalf of the ‘dragged’ minority.  

Example:
Imagine a tech start-up where an investor holds 75% and founders hold 25%. If a buyer offers to purchase 100% of the company, the investor can “drag” the founders into the sale, ensuring the buyer gets full ownership.

The Tag-Along Counterbalance

If drag-along protects the majority, tag-along rights protect the minority. These rights, allow minority shareholders to “tag along” and sell their shares on the same terms if the majority decides to sell. This ensures they are not left behind with a new controlling shareholder they did not choose and gives them a fair exit opportunity.

Unlike ROFO – which, depending on a company’s shareholders’ agreement, can give existing shareholders the first opportunity to purchase shares being transferred, tag-along rights do not require the minority to find the funds to purchase someone else’s stake. Instead, they simply allow the minority to sell their own shares alongside the majority. 

In practice, tag-along rights are rarely exercised in full because most buyers prefer to acquire 100% of the company. However, they remain an important safeguard for minority investors.

Key Features of Tag-Along Rights:

• Scope of application: Tag rights are typically triggered by any sale that results in a change of control of the company at which point the minority shareholders can sell 100% of their shares. An alternative is to include a proportionate drag which allows the minority to sell a percentage of their shares equivalent to the percentage of the majority shareholder's sale (i.e., if the majority shareholder sells 80% of its shares the minority can likewise sell 80% of its shares).
• Notice and timing: The agreement should set out how much notice the majority must give and how long the minority has to decide whether to participate.
• Execution mechanics: Clear steps for transferring shares, coordinating with the majority and ensuring completion on the same terms.
• Carve-outs: Common exceptions include ‘Permitted Transfers’ (e.g., within a corporate group in the case of a corporate shareholder or to family members in the case of an individual shareholder), which do not trigger tag-along rights.
• Costs: Minority shareholders who ‘tag along’ will typically be required to bear their pro rata proportion of transaction costs.

Example:
If the same tech start-up’s investor sells its 75% stake to a buyer, the founders can “tag along” and sell their 25% stake too, ensuring they benefit from the same valuation and exit opportunity.

Practical Tips for Entrepreneurs and Investors

• Negotiate Early: These rights should be agreed upon at the investment stage, not during an exit.
• Balance Interests: Majority wants flexibility; minority wants protection – both can coexist with clear drafting.
• Plan for Scenarios: Consider thresholds, valuation mechanisms and carve-outs carefully.
• Review Regularly: As ownership changes, ensure these provisions still reflect the parties’ intentions.

How Burges Salmon Can Help

The Manchester United story is a reminder that drag-along and tag-along rights are not just technical clauses; they can influence the outcome of major transactions. Whether you are raising capital, planning an exit, or investing in a growing business, understanding these provisions early can save time, reduce risk and keep everyone aligned when the big decisions come. 

At Burges Salmon, our market-leading Corporate practice and specialist Emerging Companies team work with businesses and investors at every stage of the corporate lifecycle, from early-stage venture capital to complex cross-border M&A. We regularly help clients:

• Draft and negotiate drag-along and tag-along clauses tailored to their commercial objectives.
• Structure exits to maximise value and ensure smooth completion.
• Advise on investment rounds to align shareholder protections with growth strategies.
• Design governance frameworks that balance investor rights with operational flexibility.
• Coordinate cross-border transactions, ensuring compliance with local laws and market practice.

To learn more about how we can support your investments, exits and strategic transactions, please get in touch.