• Money
    • Budget
    • Shop
    • Travel
    • Stories
  • Career
    • Advice
    • Entrepreneurship
    • Freelance
    • Small Business
  • Investing
    • General
    • IRA + 401K
    • Stocks + Bonds
    • Retirement Planning
    • Estate
  • The Basics
    • Student Loans
    • Credit Cards
    • Debt
    • Taxes
    • More
  1. Home
  2. Investing
  3. General
  4. What is a Come-Along Clause in a Shareholders Agreement?

What is a Come-Along Clause in a Shareholders Agreement?

By: Timothy Murphy
  • Share
  • Share on Facebook

A come-along clause, also known as a drag-along clause, is a common provision included in shareholder agreements, particularly in the agreements of growing companies seeking venture capital. While they have advantages and disadvantages, these clauses primarily benefit majority shareholders at the expense of minority shareholders.

Workplace with papers
Close-up of business contract
credit: shironosov/iStock/Getty Images

Definition

A come-along clause gives certain shareholders, usually majority shareholders, the right to force other shareholders to sell their shares when those certain shareholders decide to sell theirs. For this reason, the clause is also called a drag-along clause, because when the specified shareholder decides to sell, he can drag along all of the others into the sale.

Requirements

A minority shareholder has little recourse. Essentially, the dragging shareholder must only ensure that the other shareholder's interests are purchased at the same price and under the same terms and conditions as the dragging shareholder's.

Video of the Day

Purposes

Come-along clauses are inserted in shareholder's agreements in two situations. The first is in the shareholder's agreement of a company which will be seeking venture capital. In this case, the clause assures the venture capitalist that he will have an easily executable exit strategy. These clauses are also used in situations where it is unlikely that an investor would want to purchase anything less than 100 percent of the company. Here, the clause helps make the company marketable.

Problems

Often, holding up a potential sale is the only power a minority shareholder possesses to have any say in the operation of the company. A come-along clause basically gives the majority shareholder the right to negotiate a sale on terms acceptable to himself, leaving other shareholders with no voice at all.

Show Comments

Related Articles

What Is a VA Riders Home Loan?

What Is a VA Riders Home Loan?

The Basics
Home Ownership
By: Jane McMaster Conroy
Fair Value vs. Market Value

Fair Value vs. Market Value

Investing
General
By: Jayne Thompson

PARTNER CONTENT

They Paid Off $218K of Debt—Without Windfalls or Six-Figure Salaries

They Paid Off $218K of Debt—Without Windfalls or Six-Figure Salaries

How to Cancel a House Listing Agreement

How to Cancel a House Listing Agreement

The Basics
Home Ownership
By: KC Hernandez
Early Termination of a Lease Agreement

Early Termination of a Lease Agreement

The Basics
Renting
By: Cynthia Gomez
The Definition of a Proxy Agreement

The Definition of a Proxy Agreement

Investing
General
By: Justin Mikulka

Get Weekly Savings& Finance Tips.

  • Money
  • Career
  • Investing
  • The Basics
  • About
  • Contact Us
  • Terms
  • Privacy Policy
  • Copyright Policy
© 2019 Leaf Group Ltd. Leaf Group Media

Get Weekly Savings
& Finance Tips.

Money Made Easier.

Please enter a valid email.