Abstract
Drag-along and tag-long provisions are customary components of rights granted to investors within the terms of venture capital and private equity transactions. The drag-along right entitles a shareholder or a group of shareholders wishing to sell their shares in the company to, under certain conditions, compel all other shareholders to sell their shares under the same terms.
Conversely, the tag-along right ensures that, again under certain conditions, shareholders wishing to sell their shares cannot do so unless they also arrange for sale of the other shareholders' shares. Both drag-along and tag-along clauses are adapted from common law jurisdictions wherein the clauses often form a part of constitutional documents of companies, i.e., usually articles of association or certificates of incorporation. When used in the Czech Republic and other civil law jurisdictions, drag- and tag-along clauses are primarily included in shareholders' agreement as agreements standing aside articles of association, i.e., outside of corporate constitutional documents.
This paper assesses the functionality of the drag- and tag-along clauses in the context of Czech law and analyses the challenges imposed by the local law on the effectiveness and enforceability of such clauses.