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  2. General FAQs about shares and equity

Why do I need drag and tag provisions and what are they?

Companies with minority shareholders often have drag and tag provisions to protect both the company and the shareholders themselves

Drag and tag provisions are not included in the Model Articles that are the default for companies that incorporate, but they are usually included in any more sophisticated articles that are adopted later on.

The purpose of the provisions is to protect minority shareholders in that they will be "dragged" along if the majority shareholders wish to sell the business, but also to protect the majority shareholders in that the minority ones are obligated also to sell, if the majority wish to sell the business.  Without these clauses it is possible that a company becomes unsellable if certain minority shareholders refuse to sell.

In the context of options that are exercisable (rather than exit only), a company may end up with a number of minority shareholders, so it is normal practice to ensure that the company has these "drag and tag" provisions included in their articles before any options are exercised.

If a company is on the Vestd platform, it can choose to adopt the standard Vestd articles which includes these provisions for free.


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