Tag-Along Right
Also known as: Tag-Along, Co-Sale Right, Piggyback Right.
What is Tag-Along Right?
A tag-along right entitles minority shareholders to participate pro rata in any share sale by the majority to a third party on identical terms. It is a contractual minority-protection device created in the MOI or shareholders agreement — not statutory — and is the protective mirror of the drag-along right under South African company law.
Drafted and reviewed by
Attorney & Founder, My-Contracts.co.za · Legal Practice Council of South Africa (LPC F17333)
Definition and context
A tag-along right (or "co-sale right") gives minority shareholders the contractual entitlement to sell their proportionate shareholding alongside the majority whenever the majority accepts a third-party offer. The right prevents the majority from cashing out at a control premium while leaving the minority locked in with a new, potentially hostile controller. The minority either "tags" onto the majority sale pro rata on identical price and terms, or declines and remains as a shareholder.
Tag-along rights are contractual — South African law provides no statutory tag-along. They are created under Section 15(7) of the Companies Act 71 of 2008 in the MOI, or in a shareholders agreement consistent with the MOI. Drafting typically addresses the trigger threshold (commonly any sale exceeding 10–50% of the majority's holding, or any change-of-control sale); the notice period a selling majority must give the minority; whether the tag is pro rata or full (full tag lets the minority sell 100% of their stake while the majority may be partially crowded out); identical price, warranties, and indemnity caps for all sellers; and pre-emption interaction — tag is usually secondary to pre-emption so insiders get first bite before the third-party sale proceeds.
In practice, tag-along rights are indispensable minority protections in closely held South African companies, family businesses, and venture-backed startups where founders hold working control. They pair naturally with drag-along rights — a well-drafted cap table typically grants drag to the majority above a high threshold, tag to the minority above a lower one, and robust pre-emption on all transfers. Breach sounds in specific performance (placing the minority in the position they would have been in had the tag been honoured) or damages measured against the missed sale price.
Where this term lives in law
Companies Act 71 of 2008
Sections: 15(7), 163
Governs the incorporation, governance, and winding-up of companies in South Africa.
Frequently asked questions
What is the difference between a tag-along and a drag-along right?
A tag-along is a minority-protection right letting minority shareholders join a majority sale; a drag-along is a majority right forcing minorities to sell alongside. They operate in opposite directions: tag is elective (minority chooses), drag is compulsory (minority is dragged). Well-drafted cap tables grant both, usually at different thresholds, to balance liquidity and protection.
Is a tag-along right enforceable in South Africa?
Yes, provided it is validly created in the MOI under Section 15(7) of the Companies Act 71 of 2008 or in a shareholders agreement consistent with the MOI. Breach is actionable in contract, with remedies including specific performance (requiring the majority to honour the tag and include the minority in the sale) and damages. A minority shareholder denied a tag may also invoke the oppression remedy in Section 163.
Does a tag-along give the minority the same price as the majority?
Yes — the defining feature of a tag is that minorities sell on identical economic and legal terms, including price per share, warranties, indemnity caps, and escrow. Side payments, retention packages, or "sweetheart" terms to the majority that are not offered to tagging minorities breach the tag and expose the selling majority to damages claims.
At what ownership level does a tag-along typically trigger?
Market practice varies. Sensitive tags trigger on any sale by the majority; practical tags trigger on sales exceeding 10–25% of the majority holding, or on any change-of-control transaction. Venture-capital tags invariably trigger on founder sales regardless of size, because any founder exit is material to investors.
Contract templates using this term
1 template reference Tag-Along Right.