A drag-along right is a shareholders' agreement provision that lets a majority shareholder — or a defined group holding a set threshold of shares — compel the remaining shareholders to sell on the same terms to the same buyer.
An Ontario shareholder-agreement explainer states it plainly: “majority shareholders want drag-along so they can deliver a clean 100% sale when the time is right.” For a fund taking a control position, that is exactly the point — a buyer at exit is rarely interested in acquiring 85% of a company and inheriting a holdout minority, so the drag-along is what lets the fund promise, and deliver, a complete sale. Standard protections for the shareholders being dragged include a minimum price threshold before the right can be exercised, a guarantee of the same per-share terms as the majority receives, capped representations and warranties so a minority holder is not guaranteeing facts from before it owned shares, and holdbacks capped proportionally rather than joint. Where the drag-along sits inside a unanimous shareholder agreement, the Canada Business Corporations Act, s. 146(3) already does part of the enforcement work for a subsequent buyer of the dragged shares: a purchaser or transferee of shares subject to a unanimous shareholder agreement is deemed to be a party to that agreement, so its terms bind the buyer automatically rather than needing to be renegotiated at the moment of transfer.
A fund holds 70% of a platform company; the founder and two early employees hold the remaining 30% and sit on the board. When the fund negotiates a full-company sale at a price above the drag-along’s minimum threshold, it delivers notice to the minority holders with the agreed terms. The founder, who would rather keep running the business, has no right to block the sale — only the contractual protections the agreement gives every dragged holder: the same per-share price, capped exposure on reps and warranties, and a holdback proportional to their own stake, not the fund’s.
Dissent and appraisal right · Oppression remedy · Fiduciary duty of a director.
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