We believe that this clause is important at launch to prevent one of the shareholders from selling shares on the side, to the detriment of the rest of the team. It provides for simple notification and good faith negotiation in the event of conflict.
On the other hand, the drag-along clause is more dangerous. It allows a minority shareholders to be forced to sell its shares if the majority of the company’s shares are put up for sale.
This clause is highly appreciated by investors in the shareholders agreement because it protects the interests of the company when it is ‘mature’, but it is perfectly useless at launch because the company’s value is de facto very weak. Indeed, an investor could make an attractive offer (but far from the future value envisaged by the shareholders) to one of the majority shareholders who, if they accepted, would force everyone to sell.
This is why Alf’s documents proposes a simple and easy to implement tag-along clause.
Other options available on our website: