Drag-Along vs Tag-Along: How to Compare Exit Rights Before a UK Share Sale

Compare a drag-along with a tag-along on the shareholders’ agreement before a UK private-company share sale. Drag lets a defined holding compel the others to sell; tag only lets a minority elect to join, and it does not oblige them to sell. Clause 14’s “more than 50%” and “same terms”, and clause 15’s bare right to “sell too”, still leave classes, consideration, notice, warranties, and the articles. Mark each blank, then rewrite or do not sign.

Under the law of England and Wales, the draft draws that line. Drag compels a sale: holders of more than 50% of the Shares may require the others to sell on the same terms. Tag is an election only: if a majority shareholder sells, a minority shareholder may sell too.

Work through the five readings in this order: every class is inside “more than 50%”; cash is “same terms” even with loan notes and an earn-out; tag needs no notice; the agreement beats the articles; minorities give full business warranties. Each one is a blank, not a settled rule. Mark them before you initial clause 14 or clause 15.

Disclaimer: Checkory provides AI support, not legal advice. Consult a qualified lawyer for binding decisions.

Who can force a sale, and who can only elect to join?

A drag-along lets a specified majority require the others to transfer so the buyer can take every share. A tag-along lets minorities require the buyer to purchase their shares as well, and it does not compel them to sell.

Neither right is in the Companies Act 2006. DWF (20 July 2026) keeps a contractual drag apart from section 979, which needs a takeover offer and 90% in value and in voting rights. “More than 50% of the Shares” is silent on class. A typical mistake is to read that phrase as every class.

Sprintlaw (9 April 2026) says you must name ordinary shares, all classes, or a named group. DWF (March 2024) and Burges Salmon (June 2026) treat about 75%, or 66% to 75%, as a bargain, not the Act. Clause 15 sets no percentage. Gilson Gray (29 May 2026) calls tag a right, not a duty. Taylor Rose (17 June 2026) treats tag as the minority’s right.

What must “same terms” cover on a drag-along?

Price per share is only the start of “same terms”. The clause has to say whether the deal is cash, loan notes, shares in the buyer, an earn-out, or money held in escrow, and when completion happens. A headline cash price is not the whole bargain if another holder takes paper.

Sprintlaw reads “same terms” as price plus warranties, escrow, and timing. Clause 14 neither permits nor bans paper. Norton Rose says buyer shares need a cash-only drag or a cash equivalent. Mondaq (16 August 2019) shows “identical terms” failing when one holder takes loan notes and another an earn-out.

Walker Morris on Cunningham records that “or any other consideration” covered a share exchange. Clause 14 has no such words. For example, if one seller takes loan notes and an earn-out and you take cash, that is a missing clause, not “same terms” by silence.

Notice, the election window, and a power to sign

Tag is not automatic, and silence means only what the clause says. Burges Salmon says the agreement must set the notice and the decision period, and that no response usually means the minority stays out — when the clause says so. Clause 15 has no notice, no window, and nothing on a missing reply.

Sprintlaw’s tag-along guide says the notice should state price, buyer, and timing, and that 10 to 20 business days is a draft example, not a statutory period. DWF (July 2026) adds a power of attorney or a deemed transfer if someone will not sign. Mondaq requires that power to be a deed and keeps any agent’s authority narrow. See who can sign a contract for authority. Clause 15 does not insert the power, or say whether tag starts on only part of the stake.

Warranty liability when a minority is dragged or tags

Silence is not an uncapped business warranty, and it is not a title warranty. Mondaq says a dragged holder may refuse even title and capacity when the drag is silent. Name title, capacity, and authority, and exclude business warranties, unless you mean Burges Salmon’s usual position: ownership and no encumbrances only.

Norton Rose says “same terms” may be price only or the full package, so draft capacity and title. Sprintlaw adds a proceeds cap, several liability, and a shared escrow. Leave the figure blank. Several liability, set against joint and several liability, means each person answers only for their own share. Require both the stock transfer and the share purchase agreement. The February 2025 BVCA table left drag-along unchanged and is not a subscription-warranty rule.

Transfer pre-emption does not switch itself off

Section 561 is pre-emption on a new allotment, not on a transfer of shares already issued. B P Collins (20 August 2025) says the Act does not supply transfer pre-emption, so it is in the articles or the agreement. These articles still require a pro-rata offer to members, and neither drag nor tag is carved out.

If the documents are silent, DWF (March 2024) says pre-emption usually prevails. Sprintlaw says both documents should state that a valid drag disapplies the restrictions. Section 33 binds members to the constitution; the agreement binds signatories only. Section 21 sets no percentage for a special resolution, so “around 75%” is not the Act. DWF (July 2026) says the sale can stall when those documents do not match, including a permitted-transfer list wide enough for an outside buyer.

Compare the two rights, then mark the draft

Put the drag sentence next to the tag sentence. Drag compels a sale. Tag lets a minority elect, and does not oblige them. The log under the comparison is a first-pass — the first machine pass that extracts clauses before a human reads every page — and you still rewrite or refuse to sign.

Model articles contain no drag. Brodies says follow the clause to the letter, and that a drag inserted immediately before a sale can still be challenged under section 994. Arbuthnott v Bonnyman [2015] EWCA Civ 536, as Walker Morris summarises it, upheld a good-faith amendment of a drag that already existed. That is not a reason to write a new drag into the articles in the week of signing.

Read the log as one line: threshold and classes → consideration → election window and silence → warranty limit → a pre-emption carve-out in both documents. Rewrite those clauses, or do not sign. A first pass extracts the silent lines and does not decide the signature.