A tag-along clause (or piggyback rights) protects minority shareholders in the event of a third party
buyout. If a majority shareholder sells his/her shares to a third party, the minority shareholder has
the right to become part of the transaction and sell his/her shares to the same third party purchaser
at the same price and on similar terms. Thus, the third party, if they wish to purchase the shares,
must be prepared to purchase ALL of the outstanding shares. The benefit to the minority shareholder
is that they can avoid being in business with an unwanted new co-owner. It also ensures that all
shareholders will receive similar buyout offers and protects small shareholders from being forced to
accept much less attractive offers. A shortcoming of tag along rights is that it may cause delays in the
sale of shares.
