Tag-along / Co-selling right

A co-sale right is a contractual liabilities that protects minority owners or investors in venture capital investments. In the case of tag-along, if the majority owner sells his share, the minority owner has the right to join the transaction under the same conditions, and the majority owner is obliged to tolerate this.

In the case of startups, the co-selling right is one of the typical contractual clauses of venture capital investments, which is regulated in the term sheet. This right gives the minority owner the opportunity, if he wishes, to join the majority owner's intention to sell rate with his own share. The different shares are presented uniformly in the offer. 

Larger capital investors and financial institutions often have much better opportunities and negotiating positions to sell their stake in a company than minority owners. A minority investment is typically very difficult to sell on its own, while a majority ownership share more easily creates acquisition opportunities on the in the capital market.

During venture capital investments, the angel, 3F (family, friends, fools) investors, those with early employee stock options, and as their shares decrease, the tag-along clause can often become very important for the founders themselves. 

With the inclusion of this clause, it cannot happen that the shareholders in the majority ownership sell their own property and transfer the control position over the company to a new investor, so that the minority owners are stuck with him in an illiquid investment.

In parallel with the tag-along right, co-selling obligation also appears. This is the exact opposite of tag-along, i.e. if the majority owner receives a 100 percent takeover offer from a third party, the majority owner can force the minority owners to sell their shares. It also applies here that the minority owner can withdraw from his investment at the same price and under the same conditions as the majority owner.