Cogs In The Machine-The Drag Along Right
By David Willbe, Crowell & Moring
When an inventor builds a machine, he makes sure that he knows how each of the parts works and how they fit together. The more planning and preparation he puts into the machine, the more smoothly it operates when he switches it on. If the same kind of detailed planning and preparation are put into the legal administration of a company, then selling that company should be a much smoother process. The intention of this series of articles is to assist with that planning by looking at some of the cogs in the machine and providing some insight into what each one does.
This month’s cog is the right of one or more shareholders to force the others to join in a sale that they’ve arranged – usually referred to as a “drag-along”, “bring-along” or simply “drag”. When the company is sold, the buyer will want to be certain that they can acquire all of the shares in the company. A drag is an important cog in the machine – it means the buyer can sign a deal with a small group of shareholders, who can then deliver the entire share capital of the company.
OfferDrag Ltd. A sale process without a drag can be complicated, time-consuming and expensive if the company has more than just a few shareholders. A buyer will not want the time or legal costs involved in negotiating a deal with any substantial group of shareholders. Accordingly it is exceedingly rare to see a company of any size make it to a sale process without having a drag inserted into its articles. More often the issue is that the drag that is in the company’s articles cannot be used.
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