Drag along and tag along article of association
Specimen article of association whereby a seller of a majority holding can compel minorities to support his proposed sale and an unconnected provision whereby a seller can be made to buy out the minorities on the same terms as his proposed sale. So, for drag along, the seller initiates the sales by all shareholders and in a tag along, it is those minority shareholders who compel a seller to give them the same deal.
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About this document
Under section 979 of the Companies Act 2006 a person who acquires 90% of the shares of a company may compulsorily acquire the rest of the shares. This can be costly. 90% may be too high a percentage for any number of reasons. A sister provision is that if a majority shareholder wants to sell his shares, minorities could be very exposed to problems with new control of the company and probably new management.
Here we provide the best way to deal with each of these situations. They can be adopted on one occasion but are best treated as separate articles. Use them as articles of association or insert into your shareholders agreement or other document regulating the relationship between shareholders.
Suppose a majority shareholder wants to sell out but his buyer is interested only if he can buy the whole company - 100% of the shares. Suppose a minority who own 20% do not want to sell. This article makes sure that they must. This is how it works.
- If a shareholder (the “Selling Shareholder”) wants to sell his shares, he must first send a formal notice to each other shareholder. His notice sets out all of the terms of the proposed sale.
- Each of the other shareholders then is compelled to join in his deal and sell their shares on the same terms and effectively as part of the same deal.
The “sister” provision is for drag along. Suppose a (majority) shareholder has found a really good deal. Someone wants to buy his 55% shareholding to control the company but does not want all of the shares. Other shareholders are horrified that “their” company will now be controlled by strangers. This article makes sure that cannot happen by compelling the selling shareholder to negotiate for them to be in on his deal - if they wish. This works in a similar way to the tag along provision above.
Your complete package
In both cases we have provided a few cunning “tweaks” you can make to the provisions to suit just your case.
We have provided this document with backup of directors meeting and EGM minutes and other papers you will need to get everything together. It is now very simple for you to make these important changes.
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