Piggyback clause

The Piggyback right (also known as drag-along clause) can be used when a business corporation has at least one minority shareholder.

It protects minority shareholders in the event of a third party buyout. If a majority shareholder sells his shares to a third party, the minority shareholder is entitled to become part of the transaction and to sell his shares to the same third party purchaser at the same price and on similar terms and conditions. Thus, the third party, if he wishes to purchase the shares, must be prepared to purchase all of the issued and outstanding shares. The benefit to the minority shareholders is that they can avoid being in business with an unwanted new shareholder. It also ensures that all shareholders will receive similar buyout offers and protects small shareholders from being forced to accept much less attractive offers. A drawback of drag-along rights is that it may cause delays in the sale of shares