In South Africa, "drag-along" and "tag-along" provisions are standard in Memorandum of Incorporation (MOI) and Shareholders Agreements (SHA), particularly in private equity (PE)/venture capital (VC) and corporate joint venture (JV) transactions. These provisions typically come into play when a majority/strategic shareholder wishes to sell to a third party (assuming the co-shareholders haven't exercised their pre-emptive rights).
A drag-along right allows a majority/strategic shareholder to compel a minority shareholder to sell to a buyer with the same price, terms and conditions as those which the majority/strategic shareholder wishes to accept. A drag-along provision itself is important to the sale of many companies because buyers are often looking for complete (100%) control of a company.
Conversely, tag-along rights safeguard minority shareholders. If a majority/strategic shareholder sells its stake, it gives the minority shareholder the right to join the transaction and sell its minority stake in the company to the same buyer (or sometimes to the seller) with the same price, terms and conditions as those which the majority/strategic shareholder wishes to accept. Tag-along rights differ from drag-along rights since tag-along rights offer the minority shareholders the option to sell, but do not mandate an obligation.
Careful consideration should therefore be given when assessing the thresholds that trigger these rights when negotiating these provisions in the MOI and/or SHA and/or any sale agreement.