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Drag Along Rights - Meaning, Definition | How it Works? - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
of WallStreetmojo watch the video
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clicking the bell ican today we have a
topic with us as dragged along rights
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when we talk about drag loan right so we
have couple of details right here like
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this one thing highlighted lighthouse
shall exercise its dragon on rights to
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require to register holders of the all
remaining shares to sell of their
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transfer shares in okay no issues will
will will get to the details of this
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particular topic first and the foremost
thing what we need to understand here is
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first and the foremost thing what are
the drag along the rights first
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question see dragged along rights Clause
gives power to majority shareholders at the
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firm by which they know they can drag
along the minority shareholders to see
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to sell their stake in the company at
the time of the merger or acquisition for
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example company ABC you know has listed
on exchange and a larger company let's
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say XYZ has managed to purchase more
than 51% of ABC ok ABC shares from the
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market and from the other owners of the
firm due to which there is an
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acquisition state in future for ABC by
XYZ
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so however XYZ wishes to the
company ABC fully XYZ wants to own
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complete ABC without sharing any
ownership and minority shareholders so
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in this case the majority shareholders
would force the minority shoulder to
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sell this stake and in other words the
majority shareholders are exercising the
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what we call as dragged along rights no
issues we'll try and understand the
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feature so that more clarity will come
in this particular topic see dragged along
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rights clauses are significant both for
the issuing company as well as for the
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buyers see some significant points that
I'll draw you through is that about the
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mergers and acquisition the issuing
company may now may may want to sell its
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ownership to the new buyer form so for
this majority shareholders would already
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have
decided to sell their shares but what
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about the remaining shares which are
held by the smaller chunk of the
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shareholders see the issuing company
over here that is in our case XYZ you
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know can exercise its drag along right
and force the minority force the
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minority shoulders to sell their shares
to the minority shareholders while
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forced upon or with rights are offered
within the same price and the potential
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buyers of the form or any other buyer in
the market offered them directly does
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you know there is an equal competition
for the majority shareholders as for any
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other buyers in the market now the drag
along right Clause is a plus for our
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potential buyer okay for the firm since
you know he gets entire ownership of the
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phone and this helps them to run the
forum as as for the policies so the
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terms and condition regarding their
exercise of dragged along rights you
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know clause are generally mentioned in
the offer document at the time of the
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issuer security does the investor should
be well versed with the conditions of
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their stake in the company before any
sort of investments now we'll take on
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the benefits part of this particular
topic c1 you know rights has its own
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significance --is it has certain
benefits too now some benefits forth for
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the parties are first is the majority
shareholders as a first majority
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shareholders who also firm part of all
of the owners of the company exercise
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this right at the time of the M&A only
because their less are benefit to them
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during M&A the buyer have made me pose a
condition that they require let's see
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100% ownership in the
acquired company and may offer a little
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extra than the data off that that has
offered so in such case the owners me
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receive more by exercising these dragged
along rights
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second the minority shareholders is the
second benefit see right so the minority
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shoulders are protected by a clause as
per which they shall be paid the same
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amount for selling the stake in the
company that would have been paid by any
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other sellers in the mark then the
buyers of the company okay see for the
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buyers that the company the biggest
benefit is that they get 100% ownership
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in the firm so this eliminates
disturbance from their procedures and
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policies to run the company so even if
they require to be let's say higher
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amount if they required to pay higher
amount required the concerned company
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they are interested since you know it
ensures a means to run the company
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better now some facts about dragged
along rights I won't try and place in
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front of for that see dragged along
rights have come into existence because
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of the benefits and monopoly posed by
the majority shoulder however note there
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are few facts that all shareholders of any
company need to know like should they
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face any such situation with the shares
they would see first see the majority
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shareholder would have already have made
a deal with the buyer with the company
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situation of M&A and they may exercise
its rights on the minority undoubtedly
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okay shareholders any time and should
understand that their responsibility is
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to protect the rights by offering the
same price for the share now if you
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offer document if you offer document
that does not read anything about the
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drag along right the minority
shareholder may object to the sale of
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the company and they may also really the
process or demand for a particular
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price to the shares from the majority
shareholders so you know by mentioning
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the term majority shoulders again and
again very for the minimum ownership
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what minimum ownership in the company
and should be at least how much 51%
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right and the majority shareholder needs
to provide notice a sort of a notice
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stating that you know to the minority
shareholders in advance to the sale event to
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occur so once the sale agreement
rule the drag alone rights cannot be
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exercised now a long fifth point along
with the benefits there are major
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concerns to the minority Shareholders see your situation may arise that the share
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purchase by them becomes let's say
illiquid okay and in the market or the
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shares the which they were
bought or buy them and let's say
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preferred stock which are not openly
traded in the market so in such a case
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the price of such such securities are
not transferring to the public and hence
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the price are okay so when the price is
hidden you know which means that the
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minority shoulders are unable to
discover the real price at the time of
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any transaction in their company or at
the time when the dragon own rights have
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been exercised right so to avoid such a
scenario the shareholder should always
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always always keep an eye on the markets
and shares are floating on regular basis
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they need to keep a check on so based on
all of this let me make my conclusion
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sea dragon on right Clause may seem to
be beneficial in different ways to all
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the parties involved in the transaction
however there are lot of key points
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points you know that needs to be taken
care of by these stakeholders see there
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requires a lot of analysis to buyers
and sellers of the company before
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proceeding towards any such transactions
they may also lie some contingents at
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the end of the minority shareholders
which can cause delay the final is
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finalization of the deal and one of the
best way to proceed with the situation
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is to mention the intricate details or
in in the offer document at the time of
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the issue so that in all the parties are
well aware of the future prospects of
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the issue so that's it for this
particular topic so that's it for this
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particular topic if you have learned and
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