The short answer
A drag-along provision lets holders of a defined majority of shares require the remaining shareholders to vote for and join an approved sale of the company on the same terms. It stops a small holder from blocking a deal everyone else wants.
- Drag-along forces minority holders to join an approved sale.
- The approval threshold is the key negotiation point.
- Founders want founder or common approval included.
- Protections usually cover equal treatment and limited liability.
How it works
The clause usually sits in the voting agreement. It names who must approve a sale, often the board, a majority of preferred holders and sometimes a majority of common holders. Once they approve, everyone else must vote yes, sign the documents and sell on the same terms. Standard protections limit what dragged holders can be forced to accept, such as unlimited liability or non-competes.
Worked example (hypothetical)
A company has 40 shareholders, including several early angels. An acquirer wants 100% of the shares. The board, a majority of preferred holders and a majority of common holders approve the deal. One angel holding 0.5% objects. Under the drag-along, that angel must sell on the same terms, so the deal closes.
Why it matters to a pre-seed or seed founder
A drag-along helps you. With many small holders, one unreachable or unhappy shareholder could otherwise stall an acquisition. The risk is a threshold that lets investors force a sale founders oppose. Ask that common holders, or founders while they're still at the company, be part of the approval. See right of first refusal and term sheet.
Frequently asked questions
Who usually triggers a drag-along?
The holders named in the clause, commonly the board plus a majority of preferred and sometimes common holders.
Can a dragged shareholder get worse terms?
Standard clauses require the same price and form of consideration per share within a class.
Do angels on SAFEs get dragged?
Once their SAFEs convert into shares covered by the voting agreement, they're usually bound by it.