A drag-along right is a shareholders' agreement clause that allows the majority shareholder to compel minority shareholders to sell their shares simultaneously, on the same price and terms, when the majority has found a buyer for the entire capital. It protects the majority shareholder (typically a PE fund) against minority blockage during an exit, and guarantees the potential acquirer the ability to acquire 100% of the capital.

The drag along typically activates from a holding threshold (e.g., if the majority shareholder holds more than 60% of capital and finds a buyer for 100% at a price above an agreed floor). Trigger conditions are negotiated to protect minorities: minimum price (often the investment price or an agreed multiple), sufficient notice period, and same conditions for all shareholders (pro rata, without discrimination).

It differs from the tag-along right, which is a minority right to participate in the sale on the same terms — whereas drag along is an obligation imposed on the minority. In LBO structures with management packages, drag-along is almost systematically included to allow the PE fund to exit cleanly at the target horizon without being blocked by the co-investing management team.

Example: a PE fund holds 70% of a Swiss SME, management 30%. The shareholders' agreement includes a drag-along exercisable by the PE fund from year 3, provided the offered price exceeds CHF 15 million (entry price × 1.5x). In year 5, the fund receives an offer at CHF 22 million for 100% of the capital. It activates the drag-along — management is compelled to sell its 30% for CHF 6.6 million, realising a 2.2x multiple on initial investment.

At Hectelion, we advise on the drafting and negotiation of drag-along clauses in Franco-Swiss shareholders' agreements, balancing PE fund interests and minority co-investor protections.