Tag-Along Right
Co-sale rights, or tag-along rights, are legal safeguards that allow minority investors to sell their startup company shares alongside majority investors. It ensures that minority shareholders receive the same terms and conditions as the majority during a sale of securities.
What it Means:
Tag-Along Rights, according to Indian founders, promote equity and fairness by serving as a buffer for minority investors. This clause gives minority shareholders the ability to accompany a majority investor in selling their stake, protecting their interests and guaranteeing an equitable exit.
How to Calculate:
In the conventional sense, Tag-Along Rights cannot be measured. These are clauses in investment contracts or shareholder agreements that have legal force behind them. When a majority investor starts a sale, it activates them and gives minority investors the opportunity to join on the same terms.
Why Measure:
Assessing the influence of Tag-Along Rights is essential for Indian entrepreneurs managing investor connections. It increases minority stakeholders' trust, which promotes wider involvement in the startup's journey. Thus, a harmonious investment ecosystem is enhanced.
Examples:
Think of an appealing acquisition offer for an Indian tech startup, in which the majority investor, possessing 60% of the equity, is presented with. Minority investors with the remaining 40% can choose to sell their shares on the same terms, guaranteeing a just and inclusive conclusion, thanks to Tag-Along Rights.
Tag-Along Rights emerge as a cornerstone in building investor confidence within the Indian startup landscape. By upholding the principles of fairness and equality, founders can create an environment conducive to sustained growth and collaborative success.