Drag-along Right

Also known as: Drag-along, Drag Right, Compulsory Sale Right, Bring-along Right, Birlikte Satma Zorunluluğu

In short

A right requiring other shareholders, if shareholders holding a set majority decide to sell the company to a third party, to sell their shares to that buyer at the same price and on the same terms.

A drag-along right requires other shareholders to sell their shares on the same terms if shareholders holding a set majority decide to sell the company to a buyer. Since most buyers want the whole company, this right prevents a small minority from blocking an exit.

In Whose Favour?

The drag-along right is generally granted to a set majority of shareholders. Investors, to prevent the company being sold at a low valuation without their consent, ask for that majority to include investor consent. Early-stage investors may also ask for a drag-along right in their own favour to force a sale if no exit is achieved after a set period.

Minority Protection

Equal terms: All shareholders receive the same price per share and payment terms; if there is a liquidation preference, proceeds are distributed accordingly.
Minimum price: The right may only be exercised for sales above a set valuation.
Limited assurances: The minority shareholder gives representations and warranties only on title to its own shares; its indemnity liability regarding the company is capped at the proceeds it receives.
Independent buyer: The sale must be to a buyer not related to any shareholder.

Application under Turkish Law

The drag-along right is not regulated in the Turkish Commercial Code, and including it in the articles of a joint stock company is debated. The right is created by the shareholders’ agreement and imposes an obligation on the minority shareholder to sell its shares. If the shareholder does not perform, the shares are not transferred automatically. In practice, therefore:

Powers of attorney for the transfer of shares are obtained from shareholders in advance,
Share certificates or transfer documents are deposited with an escrow agent,
A high contractual penalty is provided for breach.

In a limited liability company, share transfers also require notarisation and general assembly approval (TCC Art. 595), so the process should be planned from the outset. The drag-along right is usually regulated together with the tag-along right, which protects the minority.

Frequently Asked Questions

Can a minority shareholder be forced to sell under a drag-along right?

If the conditions in the agreement are met, the minority shareholder has undertaken to sell its shares on the same price and terms. Under Turkish law, however, this undertaking does not automatically transfer the shares; if the shareholder does not comply, the sale is completed through a court decision or tools such as a power of attorney given in advance, and a contractual penalty may be claimed.

How is the minority protected against a drag-along right?

A high majority and, if necessary, investor consent can be required to exercise the right; a minimum sale price or valuation can be set; the minority can be guaranteed the same price and terms; and the minority's warranties can be limited to its own shares.

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