# Drag-Along Rights

## Quick Definition
A provision allowing majority shareholders to force minority shareholders to join in the sale of a company.

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## What are Drag-Along Rights?
Drag-along rights allow a majority of shareholders (often investors) to force all other shareholders to participate in a sale. If a buyer wants 100% of the company and majority holders approve, minority holders must sell on the same terms.

## Why Drag-Along Matters
Drag-along protects against holdout problems. Without it, a single shareholder could block an acquisition that benefits everyone else. Buyers typically require 100% ownership, so drag-along ensures deals can close.

For founders, drag-along is standard and generally reasonable. The protection is mutual: it prevents small shareholders from blocking beneficial exits. Just ensure the threshold requires meaningful consensus.

## Typical Thresholds
Drag-along usually requires approval by holders of a majority of preferred stock plus either the board or a majority of common stock. This ensures neither founders nor investors can unilaterally force a sale.

**Formula**  
Drag-Along Trigger: Typically requires approval of:  
- Majority of preferred shareholders  
- Plus majority of common shareholders OR board approval

**Example**  
Your SaaS company receives a $50M acquisition offer:  
- Investors (preferred): 40% ownership, unanimously approve  
- Founders (common): 45% ownership, approve  
- Early employee (common): 15% ownership, refuses

With drag-along rights, the 15% holdout must sell because majority of both preferred and common approved. Without drag-along, this single holdout could block the entire deal.

## Related Terms

**Tag-Along Rights**  
A provision allowing minority shareholders to join a sale if majority shareholders sell their stake.  
[Learn more](/content/terms/tag-along-rights/index.html)

**Right of First Refusal (ROFR)**  
The right to match any offer a shareholder receives before they can sell to a third party.  
[Learn more](/content/terms/right-of-first-refusal-rofr/index.html)

**Liquidation Preference**  
The right of preferred shareholders to receive their investment back before common shareholders in a sale or liquidation.  
[Learn more](/content/terms/liquidation-preference/index.html)

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