By Richard Naish, Daniel O’Gorman
A drag-along provision in a shareholders’ agreement has been enforced by a recent High Court decision and the shareholder in question ordered to transfer his shares. Where there are several shareholders in a company, a shareholders’ agreement is commonly used to regulate the relationship between the shareholders and to govern how the company is to be run.
Most shareholders’ agreements contain a drag along provision. A drag along is a mechanism by which the majority of the shareholders can force the minority to transfer their shares if a buyer is found for the company. Typically, the agreement will set out that if a certain proportion of shareholders agree to the sale, then the remaining shareholders have to transfer their shares as well. The figure can be anything but is usually between 51 per cent and 90 per cent.