If your business gets a serious offer from a buyer, and some shareholders want to accept it, but others refuse to sell at that price, or don't want to sell at all - who gets to make the final call?
The basic rules
In principle, each shareholder owns their shares and can choose to sell or keep them. Anyone wanting to buy the whole company must negotiate separately with every single shareholder to get their agreement.
This can create real problems in practice. Minority shareholders may block a sale, even when the majority want to proceed. You can end up in frustrating and damaging situations where good offers fall through because you can't get everyone to agree. One or two shareholders can effectively veto any sale, even when it makes business sense and the majority are keen to go ahead.
Drag rights
Many companies put "drag rights" in their articles of association or shareholders' agreements to fix this problem. These provisions let a defined percentage of shareholders - or specific key people – make the decision about a company sale as they can force everyone else to sell their shares too.
When drag rights get triggered, reluctant shareholders must sell alongside everyone else. This stops minority shareholders from blocking deals and gives potential buyers the certainty they need to proceed. .
The drag mechanism works by setting clear thresholds, perhaps 75% of shareholders, or agreement from certain named individuals (perhaps the business' founders). Once that threshold is met, all shareholders must participate in the sale on the same terms.
Tag rights
Drag rights help the majority, but what about minority shareholders? This is where "tag rights" come in. These provisions protect smaller shareholders by guaranteeing they can sell their shares on the same terms as everyone else when the majority decide to sell.
Tag rights prevent situations where majority shareholders negotiate a good deal for themselves while leaving minorities stuck in a company they never wanted to stay in long-term. Without these protections, you could end up with majority shareholders taking their money and running, while minority investors find themselves trapped with shares in a business they can't easily exit.
These rights work both ways—they give minorities the security of knowing they won't be left behind, while also giving majorities the confidence that they can execute sales without worrying about the influence of other shareholders.
Planning your exit
You should plan your exit strategy from day one. Yes, even if you never want to sell or plan to pass shares to your children. This might seem strange when you're focused on growing the business, but there are good reasons to tackle this early.
First, it helps you establish if everyone has the same vision for the company's future. You might discover that some shareholders see this as an investment they want to realise, while others view it as a family business to pass down generations. Better to know this upfront than find out during heated negotiation in the future.
Second, clear agreements prevent damaging disputes when emotions run high during sale talks. Money has a way of changing relationships, and shareholders who got along fine during the good times can turn against each other when big sums are at stake. Having the rules sorted out beforehand removes a lot of personal conflict.
Third, proper planning means you won't miss good opportunities because of legal complications. Buyers don't wait around while you sort out internal disputes. They'll move on to companies that have their act together.
Documenting your agreement
Once shareholders agree on how exits should work, you need proper legal documents to capture these arrangements. This isn't just about having something on paper, it's about creating a clear and understandable framework - that creates clarity and works when the pressure is on.
These documents need to cover the mechanics: How do you value the company? What triggers drag rights? How long do shareholders have to respond to offers? Who pays the legal costs? What happens if someone refuses to complete their sale?
Getting this sorted early means that when opportunities arise, whether planned or not, your business can respond quickly and effectively. You won't be scrambling to negotiate internal agreements while trying to close a deal with external buyers.
The bottom line is simple, have these conversations now and get the paperwork sorted before you need it. That way, your exit strategy works for everyone, and your business can make the most of the right opportunities when they come up.
This information is for guidance purposes only and does not constitute legal advice. We recommend you seek legal advice before acting on any information given.
