Shareholders agreements generally include drag along clauses. The provisions of drag along clauses differ but the example below gives a general illustration.


If an external party puts a bid on the total number of shares of a company and a certain percentage of the shareholders accept that bid, all shareholders have to accept the bid and sell their shares.


The purpose of drag along clauses is to increase investors' likelyhood of being able to sell their shares. A bid on the shares of the company is the most likely exit opportunity for investors in early-stage companies. Drag along clauses facilitates the sales process since a bidder does not need to negotiate with all shareholders individually in order to buy the company.