Glossary
Drag-Along Threshold
The percentage of shareholders required to trigger drag-along rights — forcing minority shareholders to sell in an acquisition. Typically 60-75% in Indian SHAs.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
Drag-Along Threshold is the percentage of shareholders required to invoke drag-along rights — which force minority shareholders to participate in a sale of the company at the same terms as the majority.
Common thresholds: 50% + 1 share (simple majority), 60% (super-majority), or 75% (high consensus). Higher thresholds favour minorities; lower thresholds favour majority shareholders.
India Context
Indian SHAs typically set drag-along threshold at 60-75% of shares (sometimes weighted by share class). Founders pushing for higher thresholds (75%+) make exits harder to execute; investors prefer lower thresholds (50-60%) for execution flexibility. The negotiation reflects founder-vs-investor power dynamics.
Example
An Indian Series A SHA has 60% drag-along threshold. At Series C, total ownership: founders 40%, all preferred investors collectively 50%, ESOP pool 10%. To drag all shareholders into an acquisition, the supporting parties need 60% — possible if founders + lead investor (with 30% ownership) align.
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