Drag-along right

A drag-along right (obligation de sortie conjointe) is a contractual provision in a shareholders' agreement allowing a majority shareholder to compel minority shareholders to sell their shares in the same transaction, at the same price and on the same terms, when the majority sells its stake. It protects the majority seller and potential acquirers who require 100% of the capital to complete the transaction. Unlike the tag-along right, its counterpart, which gives minorities the option to follow, drag-along is mandatory for minorities, subject to defined triggering conditions such as minimum price thresholds that protect minority economic interests. Without a drag-along clause, a recalcitrant minority could block or significantly complicate a transaction, reducing the company's overall marketability and value.

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Example: a PE fund holding 65% of a Swiss SME receives an acquisition offer for 100% at CHF 40 per share. The drag-along clause allows the fund to compel the 35% minority shareholders (3 individuals) to sell at CHF 40, even if one objects to the price: as the drag-along conditions are properly triggered (offer above the agreed threshold), the sale proceeds over the objection. The clause provides a floor price of 1.5x entry valuation (CHF 38 per share), protecting minorities against a distressed drag at insufficient prices. Without this clause, the acquirer would receive only 65%, making the transaction unviable for a strategic buyer requiring full control.

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Hectelion structures drag-along and tag-along rights in shareholders' agreements with appropriate price protections to ensure 100% transferability and clean exit mechanisms while protecting minority economic interests.