The tag along, or tag-along right, allows the minority shareholder to join the sale when the majority shareholder sells, on the same terms. The drag along, or drag-along right, allows whoever accepts an offer for 100 % to force the rest to sell. Both are agreed in the shareholders' agreement and, sometimes, in the articles of association.
What is tag along (tag-along right)
Tag along protects those who do not control the company. It avoids two risks: ending up with a new controlling shareholder they did not choose and seeing the majority shareholder alone collect the premium a buyer pays for control.
It works like this: when a shareholder, or a group, receives an offer that exceeds the agreed threshold, they must notify the rest. Minority shareholders have a period to decide whether to sell with them. It can be agreed that they sell all or a proportional part. If the buyer does not agree to buy from them as well, the seller cannot close the transaction, or must acquire those shares themselves.
What is drag along (drag-along right)
Drag along protects the exit. Many buyers only want 100 % of the company, and a shareholder with a small stake could block the sale or demand a higher price. The clause allows that, if an agreed majority accepts an offer for the whole company, the rest is obliged to sell on the same terms.
Since drag-along limits those subject to it, it is negotiated with counterbalances: a minimum price or valuation, consideration in cash or equivalent, clear deadlines and warranties limited to each shareholder's stake. It is a common clause when a venture capital fund enters, because its model depends on being able to sell.
| Aspect | Tag along | Drag along |
|---|---|---|
| Who exercises it | The minority shareholder | The agreed majority |
| Whom it protects | The shareholder who does not control | Whoever negotiates the exit and the buyer |
| Usual trigger | Sale above a threshold or change of control | Offer for 100 % accepted by the agreed majority |
| Effect | The minority shareholder can sell alongside the majority shareholder | The minority shareholder must sell with the majority |
| What to negotiate | Threshold, sale in full or pro rata, term | Majority that triggers it, minimum price, term and guarantees |
How they are agreed: shareholders' agreement or articles of association
Most of these clauses live in the shareholders' agreement, which is private and only binds those who sign it. The Ley de Sociedades de Capital is clear: reserved agreements between shareholders are not enforceable against the company (art. 29). If a shareholder breaches it, the others can claim against them, but the company is not obliged to reject a transfer that the agreement prohibits.
For a rule to be enforceable against anyone, it must go in the articles of association. In the private limited company, the Reglamento del Registro Mercantil allows clauses to be registered that impose on the shareholder the obligation to transfer their interests to the other shareholders or to determined third parties when circumstances set out clearly and precisely in the articles of association occur (art. 188.3), which is the basis in the articles of association for the drag-along. The former Dirección General de los Registros y del Notariado, in its resolution of 4 December 2017, required the consent of all shareholders to introduce a drag-along clause by amendment of the articles of association. In the public limited company, restrictions on transfer are only valid against the company if they apply to registered shares and are expressly set out in the articles of association (art. 123 of the Ley de Sociedades de Capital). The drag-along is more than a restriction, because it imposes the obligation to sell: introducing it by amendment of the articles of association requires the consent of those affected (art. 291), and anyone who does not vote in favor of a restriction introduced in this way is not subject to it for three months from its publication in the BORME (art. 123.1).
The practical rule: what must be enforceable against anyone goes in the articles of association; what is confidential or specific to the round goes in the agreement. And it is worth setting the terms in the term sheet, with the cap table in front of you, because thresholds depend on who will hold each percentage after the round.
Examples of clauses in plain language
They are illustrative, not a contract template. The figures are examples and the final wording is up to your legal counsel.
Tag-along. If a shareholder holding more than 50 % of the capital receives an offer to sell their interests, they must notify the rest within ten days. Each shareholder may, within the following fifteen days, require to sell alongside them a pro rata portion of their interests, at the same price and on the same terms. If the buyer does not accept, the selling shareholder may not transfer.
Drag-along. If shareholders representing at least 75 % of the capital accept an offer from a third party for 100 % of the company, they may require the rest to sell at the same price and on the same terms, provided that the price is not lower than the agreed value and is paid in cash. The guarantees provided by each shareholder shall be limited to their shareholding.
How to reflect these restrictions in a token
If the issuer is a public limited company and tokenizes its shares, the registry is kept by an ERIR, a legal form under article 8 of the Ley 6/2023 developed by RD 814/2023. Interests in a private limited company are not securities (art. 92.2 of the Ley de Sociedades de Capital) and cannot be registered in an ERIR: to tokenize the capital, the private limited company must first convert into a public limited company. Tokenized securities are usually issued with permissioned standards such as ERC-3643, which check rules before each transfer: who can be a holder, temporary lock-ups or per-investor limits. This makes it possible to move part of the agreement into the registry itself.
| Agreement rule | What the registry can do | What still depends on the contract |
|---|---|---|
| Temporary lock-up | Prevent transfers until a date | Exceptions that require assessing a specific case |
| Right of first refusal | Not register the transfer until the waiver or exercise of the right is evidenced | Set the price if there is a discrepancy |
| Tag along | Not register a sale of control until the tag-along offer or the waiver by the minority shareholders is evidenced | Ensure the buyer actually pays the minority shareholders |
| Drag along | Allow an authorized agent to execute the forced transfer, if there is sufficient legal title and the ERIR permits it | Check that the offer respects the minimum price and resolve disputes |
Everything revolves around registration. The registry can prevent a transfer that does not comply with the rules from being registered, but it does not by itself enforce contractual obligations: it does not pay, does not assess whether a price is fair and does not replace the courts or arbitration. In ERC-3643, the forced transfer is executed by an agent with special permissions, not automatically by the code. That is why the agreement is still necessary, and what changes is operational friction. Define with your advisor and with the ERIR which rules are programmed and which remain on paper; in a startup, that design fits with the cap table on-chain.
Are you going to tokenize the capital with a shareholders' agreement that includes tag-along or drag-along? Take the issuance diagnostic (2 min) or request a proposal.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
Frequently asked questions
What is drag along?
It is the drag-along right: a clause that allows the shareholders who hold the agreed majority, when they accept an offer for 100 % of the company, to force the rest to sell their shares at the same price and on the same terms. It is usually accompanied by safeguards for the dragged shareholders, such as a minimum price, cash payment and guarantees limited to their stake.
What does tag along mean in Spanish?
It translates as 'derecho de acompañamiento' or 'derecho de venta conjunta'. It allows the minority shareholder to join the sale when the majority shareholder sells its stake or transfers control, at the same price and on the same terms. If the buyer does not agree to also acquire those shares, the seller cannot close the transaction as originally planned.
What is the difference between tag along and drag along?
Tag along is a minority right: the minority shareholder can sell alongside the majority shareholder. Drag along is a majority right: the majority shareholder can force the minority shareholder to sell. The first protects whoever does not have control against a change of control; the second protects the exit, because many buyers only acquire 100 % of a company.
Can drag along be included in the articles of association?
Yes. In a Spanish limited liability company, article 188.3 of the Reglamento del Registro Mercantil allows clauses to be registered that require the transfer of shares in clear and precise circumstances. According to the DGRN resolution of 4 December 2017, introducing it through an amendment to the articles of association requires the consent of all shareholders. Bringing it into the articles of association makes it enforceable against the company, unlike a reserved agreement.
