What is Tag Along?

What is Tag Along? | Izmir Start-up Lawyer

What is Tag Along?

“Birlikte Satma Hakkı”

The Tag Along right, not regulated by legal legislation, is in practice governed by an agreement signed between company shareholders. For company shareholders to benefit from their Tag Along rights, the framework of this right must be agreed upon beforehand within the scope of a shareholder agreement (SHA). Unlike the company's articles of association, shareholder agreements (SHAs) are not public documents but private agreements between the parties. Therefore, they are not binding on all members of the company, but only on the individuals participating in the shareholder agreement.

Tag Along haklarını kullanmanın en temel avantajlarından biri, şirketin satılması durumunda bu düzenlemenin azınlık hissedarlarına (bazen hisse sahibi olan çalışanlar da dahil olmak üzere) bir takım finansal ve yasal koruma sağlamasıdır. Bir satış teklif edildiğinde, azınlık hissedarları genellikle yeterli pazarlık gücüne ve yasal bilgiye sahip değildir. Tag Along düzenlemesi ile azınlık hissedarları çoğunluk hissedarlarına teklif edilen koşullarda hisselerinin satışını gerçekleştirebilme imkânı elde edebilirler. Bu sebeple düzenlenecek bir Tag Along maddesi, azınlık hissedarların şirket paylarını nakde çevirebilme imkanlarının artmasını sağlayacaktır. Çünkü Tag Along ile azınlık hissedarlara çoğunluk tarafından yapılan herhangi bir anlaşmaya katılma ve bir bakıma “geride kalmalarını engelleme” fırsatı verilecektir.

Another reason for Tag Along arrangements is that, in practice, when a shareholder who owns a majority of a company's shares sells their stake, the sale of the shares at a price higher than their actual value, also known as a "control premium," arises because the majority shareholder has a higher stake and more decision-making power.

Tag Along arrangements, in summary, allow minority shareholders to participate in high-priced sales processes and sell at the same higher price as in any sale between majority shareholders and a third party.

Tag Along It is a right, not an obligation. Therefore, under a tag-along arrangement, a minority shareholder is free to choose whether or not to exercise this right, unless there is a provision to the contrary.

Tag Along arrangements are primarily used to ensure that the interests of minority shareholders are also considered during a company sale. However, Tag Along rights can sometimes complicate the completion of a sale. In some companies where Tag Along arrangements exist, they can act as a deterrent to potential investments. Naturally, some investors would not choose to invest in a company that imposes obligations unsuitable for them.

What is the difference between tagging rights and dragging rights?

Drag-along rights are essentially the opposite of tag-along rights. While tag-along rights give minority shareholders negotiating rights in a sale, drag-along rights compel minority shareholders to accept any agreement negotiated by the majority shareholders.

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