Drag-along and tag-along: the drag right and the join right in a shareholders’ agreement

Service page: Commercial contracts lawyer: drafting, review and enforcement.

What are drag-along and tag-along?

Both terms come from investment agreements and shareholders’ agreements, and they do not appear in the Companies Law:

• Drag-along (the drag right): a clause under which, when shareholders who hold a percentage set in the agreement agree to sell their shares to a buyer, they may require the other shareholders to sell too, on the terms the clause sets. The clause is meant to allow the sale of all the company’s shares when the buyer demands it.
• Tag-along (the join right, also called the tag right): a clause under which, when a shareholder sells all or some of their shares, the other shareholders may demand that the buyer also purchase their shares, on the terms the clause sets. The clause is meant to allow the minority to exit together with the person who sells.

The threshold that triggers the clause, the types of transaction, the price, the notices and the exceptions are set in the wording the parties agreed on. So the first question is what is written, and where.

Articles of association or shareholders’ agreement: where the clause is written

A company may include in its articles of association the rights and duties of the shareholders and of the company, and any other matter that the shareholders saw fit to regulate in them (section 19 of the Companies Law, 5759-1999), as well as a provision that restricts the transferability of the shares, on the conditions it sets (section 294). The articles of association have the status of a contract between the company and its shareholders and among the shareholders themselves (section 17(a)), and a shareholder’s rights and duties are as set in the Law, in the articles and under any law (section 183).

A shareholders’ agreement outside the articles of association is signed between certain shareholders, and sometimes also the company. So it is worth checking who signed it, and whether anyone who received shares after the signing has also joined the agreement. In a private company, a shareholder is whoever is recorded as such in the register of shareholders (section 176), and the company changes the record, among other things, when it receives a deed of transfer signed by the transferor and the transferee and the requirements of the articles, if any were set, have been met (section 299(1)).

The articles of association are changed by an ordinary majority at the general meeting, unless the articles set a different majority (section 20(a)). When the company’s shares are divided into classes, a change that harms the rights of a class also needs the approval of a meeting of that class, unless the articles provide otherwise (section 20(c)). The company may restrict, in the articles or in another contract, its power to change a provision of the articles, by a resolution passed by the majority required to change the articles (section 22). And when voting on a change to the articles, a shareholder must act in good faith and in an acceptable manner and refrain from abusing their power (section 192(a)(1)).

Forced sale in a private company: section 341

The Companies Law sets a forced sale route that does not depend on any agreement. A person who offered to purchase shares, or a class of shares, of a private company, where the holders of 80% of the shares being transferred accepted the offer within two months, may, within one month after the end of the two months, notify every shareholder who did not accept that they wish to purchase that shareholder’s shares. The 80% does not count a controlling shareholder of the offeror, or anyone acting on their behalf or on behalf of the offeror, including their relatives and corporations they control (section 341(a)).

After the notice, the objecting shareholders must sell their shares and the offeror must purchase them, on the terms offered to the shareholders who accepted, unless the court decided otherwise at the request of an objecting shareholder filed within one month of the date of the notice (section 341(b)). The offeror transfers the consideration to the company, and the company records the offeror as the holder of the shares (section 341(c)). The articles of association can set a percentage other than 80%, by a resolution to change the articles under section 20 (section 341(d)).

Public company: full tender offer and special tender offer

In a public company, a purchase after which a person will hold more than 90% of the shares, or of a class of shares, is made only by a full tender offer (section 336(a)). If the offer was accepted so that those who did not accept it hold less than 5% of the issued share capital, and more than half of the offerees who have no personal interest in accepting it accepted it, or so that those who did not accept hold less than 2%, all the shares pass to the ownership of the offeror (section 337(a)–(a1)). An offeree may ask the court, within six months of the date the offer was accepted, to determine that the consideration was less than the fair value (section 338(a)–(b)); the offeror may set in the terms of the offer that whoever accepted it will not be entitled to this remedy, subject to the duty of disclosure in section 338(d) (section 338(c)).

In a public company, a purchase as a result of which a person becomes the holder of a “control block”, that is, shares that give 25% or more of the voting rights, when the company has no holder of a control block, or a purchase that raises their holdings above 45% when no other holder has more than 45%, is made only by a special tender offer (sections 1 and 328(a)), which is addressed to all the offerees (section 331(a)). The obligation does not apply, among other things, to a purchase from an existing holder of a control block as a result of which the buyer becomes the holder of a control block (section 328(b)(2)). The Companies Law sets no join right (tag-along) in a private company: it has no provision requiring a person who buys shares in a private company to offer to purchase the shares of the other shareholders too. Such a right is set in the articles of association or in an agreement. The oppression remedy in section 191, discussed below, is a separate route.

When the clause is triggered: good faith, oppression and enforcement

Exercising a right under the articles of association or under the agreement is subject to the duties in the Law. A shareholder must, in exercising their rights toward the company and toward the other shareholders, act in good faith and in an acceptable manner, and refrain from abusing their power in the company (section 192(a)), and must also refrain from oppressing other shareholders (section 192(b)). The controlling shareholder, a shareholder who knows that their vote will be decisive, and a shareholder who has power under the articles to appoint or prevent the appointment of an officer also owe a duty to act fairly toward the company (section 193(a)). The laws that apply to breach of contract apply, with the necessary changes, to a breach of these duties (sections 192(c) and 193(b)). Contract law also requires a right arising from a contract to be exercised in an acceptable manner and in good faith (section 39 of the Contracts (General Part) Law, 5733-1973).

When a company matter is being conducted in a way that oppresses shareholders, or there is a material concern that it will be conducted that way, the court may, at a shareholder’s request, give instructions to remove or prevent the oppression, including instructions that the shareholders, or the company subject to section 301, purchase shares (section 191(a)).

When a party refuses to comply with a drag-along or tag-along clause, the injured party is entitled to sue for enforcement of the contract or to rescind it, and is entitled to damages in addition to either of them or instead of them, all in accordance with the provisions of the Law (section 2 of the Contracts (Remedies for Breach of Contract) Law, 5731-1970). The right to enforcement does not apply, among other things, when enforcement would be unjust in the circumstances of the case (section 3(4)).

The wording decides: what to check before you sign

In a contract made or renewed after the commencement of Amendment No. 3 to the Contracts (General Part) Law, published on 7 January 2026, a new version of section 25(a) applies (section 2 of the amending Law). The parties may agree on how the contract is to be interpreted (section 25(a)(1)); a business contract that sets no provisions on how it is to be interpreted is interpreted according to its wording alone, unless the wording alone leads to an unreasonable result or to a contradiction between its provisions (section 25(a)(2)); and parties who were not represented by a lawyer in drafting the contract are regarded as not having agreed on how it is to be interpreted (section 25(a)(5)(a)). The Law does not define a “business contract”. It is worth checking before signing:

• What threshold triggers the drag right, and which shares are counted in it: all the shares, a certain class, or a majority in each class.
• Which transactions trigger each clause: sale of all the shares, sale of control, partial sale, merger or sale of assets.
• Whether the consideration and the payment terms are the same for all the sellers, and what happens when the buyer gives some of them a separate benefit, such as an employment contract.
• Whether a minimum price or a valuation mechanism was set.
• Which representations, indemnities or guarantees will be required of a shareholder who is dragged along, and to what extent.
• What the deadlines are and how notices are delivered, and what happens when a shareholder does not sign the transfer documents.
• Whether the clause is written in the articles of association, in the shareholders’ agreement or in both, and who is a party to the agreement.

If you are about to sign a shareholders’ agreement or an investment agreement, or you face a demand to trigger such a clause, you can read about drafting and reviewing agreements on the commercial contracts page, and about the clauses worth setting between the founders already in a founders’ agreement.

Frequently asked questions

What is the difference between drag-along and tag-along?

Drag-along (the drag right) allows shareholders who hold a percentage set in the agreement to require the other shareholders to sell to the buyer together with them. Tag-along (the join right, also called the tag right) allows a shareholder to demand that the buyer also purchase their shares when someone else sells. These are contractual clauses that do not appear in the Companies Law, and they bind by virtue of the articles of association (section 17(a) of the Companies Law) or by virtue of a shareholders’ agreement.

Can a minority shareholder be forced to sell their shares?

Yes, by several routes, among them: a drag-along clause in the articles of association or in an agreement to which the shareholder is a party; and in a private company, also section 341 of the Companies Law. Under it, when the holders of 80% of the shares being transferred have accepted a purchase offer within two months, the offeror may require the objectors to sell on the same terms, unless the court decided otherwise at the request of an objecting shareholder filed within one month of the notice (section 341(a)–(b)). The articles can set a different percentage (section 341(d)). In a public company, the Law sets a full tender offer route (sections 336–338).

Is there a tag-along right in the law?

The Companies Law sets no join right in a private company: it has no provision requiring a person who buys shares in a private company to offer to purchase the shares of the other shareholders too. Such a right is set in the articles of association or in an agreement. The oppression remedy, under which the court may order the purchase of shares (section 191(a)), is a separate route. In a public company, a purchase as a result of which a person becomes the holder of a control block (25% of the voting rights or more) when the company has no holder of a control block, or that raises their holdings above 45% when no other holder has more than 45%, is made by a special tender offer addressed to all the offerees (sections 328(a) and 331(a)). The obligation does not apply, among other things, to a purchase from an existing holder of a control block as a result of which the buyer becomes the holder of a control block (section 328(b)(2)).

A minority shareholder thinks the drag-along oppresses them. What can be done?

A shareholder must act in good faith and in an acceptable manner, refrain from abusing their power and refrain from oppressing other shareholders (section 192 of the Companies Law), and the controlling shareholder owes a duty of fairness toward the company (section 193). A shareholder may ask the court for instructions to remove or prevent oppression (section 191(a)). In the section 341 route, an objecting shareholder may ask the court to decide otherwise, within one month of the date of the notice (section 341(b)).