Drag along and tag along provisions: a Russian and English law comparison | Practical Law

Drag along and tag along provisions: a Russian and English law comparison | Practical Law

A table comparing and summarising the Russian and English legal positions on tag along and drag along provisions. This is part of a set of resources comparing the English and Russian law provisions on commonly used terms in international transactions.

Drag along and tag along provisions: a Russian and English law comparison

Practical Law UK Practice Note 5-504-3676 (Approx. 5 pages)

Drag along and tag along provisions: a Russian and English law comparison

by Ian Ivory and Anton Rogoza, Goltsblat BLP, Moscow
Law stated as at 19 Jan 2011 • England, Russian Federation, Wales
A table comparing and summarising the Russian and English legal positions on tag along and drag along provisions. This is part of a set of resources comparing the English and Russian law provisions on commonly used terms in international transactions.

Drag along and tag along provisions

Drag along and tag along provisions are widely used in international M&A deals, particularly in the context of joint ventures and private equity investments (see Practice note, Termination: joint ventures).

Drag along rights

English law
Russian law
A drag along right allows a shareholder of a company (usually a majority shareholder or institutional investor) to force the remaining shareholders to accept an offer from a third party to purchase the whole company, where the majority shareholder has accepted that offer, on the same terms. The other (usually minority) shareholders are then "dragged along" and forced to sell their shares at the same time and at the same price for each share.
The aim is to provide liquidity and an exit route to the majority shareholder or institutional investor for its investment as most buyers will want to acquire 100% of the company and not be left with a (potentially uncooperative,or even hostile) minority shareholder group. It is sometimes known as a "squeeze out" provision. 
The concept of drag along rights have not yet been developed. There is currently no clear and defined case history to follow on a consistent basis.

Common drag along provisions

English law
Russian law
Common drag along provisions include:
  • A provision stating that to invoke the drag along provisions, the drag-along offer must originate from a genuine third party, unconnected to the majority shareholder and acting on arm's-length commercial terms. 
  • A provision that the offer may also need to match or exceed a minimum agreed price or minimum time period before the drag along right can be triggered. 
  • A limited time period for the minority shareholder to match the offer and buy the majority shareholder's shares itself. 
  • A provision that the price may only be in cash, payable in full at completion (precluding, for example, any non-cash consideration (such as shares or loan notes), deferred consideration or an earn-out). 
  • Irrevocable powers of attorney authorising the attorney to sign the share transfer on behalf of the "dragged" shareholder, dealing with the formalities of transfer and holding the purchase price on trust for the dragged shareholder, unless and until it is prepared to co-operate with the sale.
Irrevocable powers of attorney are not currently recognised, see Practice note, Put and call options: a Russian and English law comparison.

Tag along rights

English law
Russian law
A tag along provision is a corresponding right entitling certain (usually minority) shareholders to participate in a sale by the other (usually majority) shareholders at the same time and at the same price for each share. The minority shareholder then "tags along" with the majority shareholder's sale.
These provisions are typically included in the constitution of the company and state that, if the tag along procedures are not followed by the purchaser, its attempt to buy any of the shares is invalid and will not be registered.
The concept of tag along rights has not yet been developed. There is currently no clear and defined case history to follow on a consistent basis.