Drag-Along and Tag-Along Rights for Startup Shares: What the UAE Changed in October 2025

Drag-along rights let a shareholder or group holding enough of a company force every other shareholder to sell on the same price and terms when a buyer wants the whole company, not 95% of it. Tag-along rights run the other way: they let a minority holder join a sale a majority shareholder initiates, instead of being left as a minority partner of whoever just bought in. Whether either right exists automatically, or only because someone wrote it into a contract, depends entirely on where the company is incorporated — and that answer changed in two Gulf jurisdictions in the last three years.

Almost every explainer on this topic — AngelList's education center, CRV's founder guides, the usual VC-blog primers — describes drag-along as a Delaware stockholders agreement clause, full stop. That's accurate for Delaware. It stopped being the full picture for the UAE in October 2025, and hasn't been accurate for Saudi Arabia since January 2023.

What each right actually does

The mechanics are simple once you separate who they protect. A buyer acquiring a company almost always wants 100% of it — a holdout 5% minority shareholder still has their own consent rights, their own tax position, and their own lawyer. Drag-along exists to prevent that: once shareholders holding a defined threshold agree to sell, everyone else is required to sell too, on the same price and terms, either by contract or, now in some jurisdictions, by statute.

Tag-along protects the opposite party. If a majority shareholder finds a buyer for their own stake, a minority holder with tag-along rights can insist on selling into the same deal, at the same price, rather than being stuck as a minority partner of a new owner they never chose. The two clauses are usually negotiated as a pair — investors want the drag, founders want the tag.

Neither clause changes who owns what before a sale. Both only activate once a real transaction is on the table, which is why founders rarely think about them until the clause is the thing standing between a signed term sheet and a closed deal.

Delaware: a contract, and only a contract

Delaware General Corporation Law creates no drag-along or tag-along right for any company by default. Both exist exactly as far as someone drafted them — typically in a stockholders agreement investors require as a condition of the round. Skip that step, and a Delaware company has no mechanism to force a holdout shareholder into a sale at all; the acquirer either walks or structures around the holdout, which costs the rest of the cap table money or time.

The clause's enforceability got a real test in 2021. In Manti Holdings v. Authentix Acquisition Co., the Delaware Supreme Court upheld a stockholders agreement's "Refrain Obligation" — language that functioned alongside a drag-along provision — as a valid advance waiver of the stockholders' statutory appraisal rights under DGCL § 262. Sophisticated, counseled stockholders who signed the agreement couldn't later invoke appraisal to second-guess the price a drag-along sale delivered. The holding is fact-specific, but the direction is clear: Delaware courts will hold stockholders to a well-drafted drag-along clause, including the parts that try to cut off the usual legal escape hatch.

UAE: statutory since October 2025, not before

This is the part most current guides — our own included — describe as settled when it changed underneath them. Until recently, drag-along and tag-along in a UAE mainland company existed nowhere, unless a shareholders agreement created them, binding only the people who signed it.

Amendments to the UAE Commercial Companies Law changed that. Published in the Official Gazette on 14 October 2025 and in force from 15 October, the amendments expressly permit LLCs and private joint stock companies to embed drag-along and tag-along rights directly into their memorandum or articles of association — not just a side shareholders agreement. That distinction matters the same way it matters in the Saudi comparison below: a right written into the constitutional documents binds every shareholder the moment they acquire shares, with no joinder agreement needed for the next investor or SAFE holder who converts.

The amendment is an enabling provision, not a default. It doesn't set a drag-along threshold for every UAE company the way Saudi law does — it gives companies the legislative basis to write their own threshold, notice period, and price mechanics into the articles, where before October 2025 that choice had no clear statutory footing. If your UAE company's constitutional documents predate this change, that's worth a conversation with counsel before your next round, not after a buyer shows up.

Saudi Arabia: a fixed threshold, written into the company itself

Saudi Arabia got there first, and with more specificity. The Companies Law that took effect on 19 January 2023 was the first Saudi statute to explicitly recognize drag-along and tag-along mechanisms. Article 113 lets shareholders holding 90% or more of a joint stock company's capital require the rest to sell alongside them on the same terms, with tag-along giving minority holders the mirror right on a majority's exit; similar rights apply to LLC partners under the same law. Companies incorporated before the law took effect had a two-year grace period — which closed in January 2025 — to update their constitutional documents.

The practical difference from Delaware and the new UAE position: Saudi law hands you a specific number. A Saudi company doesn't negotiate what percentage triggers a drag from first principles, or set its own threshold the way the UAE's enabling provision now allows — 90% is the statutory anchor the company's documents work around.

What to actually negotiate

None of the three regimes above stop a founder from negotiating the terms inside the clause, and that's where the real leverage sits, regardless of jurisdiction:

• A price floor. A minimum valuation below which the drag-along can't be triggered, so a majority shareholder can't force a fire sale that wipes out common stock while technically following the clause.
• Per-share parity with preferred. Common shareholders get at least the same per-share consideration as preferred in a drag-along sale — without it, liquidation preference stacking can leave founders with close to nothing while technically "participating."
• A lock-up period. Six to twelve months after a financing round, typically, during which the drag-along can't be exercised, so a new investor can't force an exit before the company has had a real chance to execute.
• Carve-outs for low-risk transfers. The same exceptions a well-drafted right of first refusal uses — transfers to a personal trust, a spouse, an estate, or a holding company the same person controls. We go deeper on ROFR carve-outs in our piece on right of first refusal for startup shares.

The mistake isn't having a drag-along clause — investors will ask for one regardless. It's signing the version with no floor, no parity requirement, and no lock-up.

Where Govy fits — and where it doesn't

Drafting the clause, and getting the threshold and carve-outs right for your jurisdiction, is still work for a lawyer — Govy doesn't generate shareholders agreements from a form. What Govy does once that clause exists is keep it tied to the same ledger as the rest of your ownership record: the shareholder registry, reserved-matters tracking, and general-assembly governance a drag-along or tag-along event actually runs through. If a sale triggers a drag, who currently holds what needs to come from a record that reconciles, not a spreadsheet nobody has touched since the last round.

We covered the UAE and Saudi shareholders agreement landscape in more depth, including reserved matters and the articles-versus-contract distinction, in our shareholders agreement template guide — read it alongside this piece, since the UAE's October 2025 amendment updates part of what it says about mainland law having no statutory backing here.

See how Govy keeps your shareholder registry and governance records tied to one ledger at govy.tech.

FAQ

What is the difference between drag-along and tag-along rights?

Drag-along lets a shareholder or group holding enough of the company force every other shareholder to sell their shares on the same price and terms when a buyer wants the whole company — it protects the majority's ability to deliver a clean sale. Tag-along runs the other way: it lets a minority holder join a sale a majority shareholder initiates, on the same terms, instead of being left behind as a minority partner of whoever just bought in. Most shareholders agreements include both, because they protect different people from different outcomes.

Are drag-along rights enforceable in the UAE?

Yes, and the legal basis changed recently. Before October 2025, drag-along in a UAE mainland company existed only if it was written into a shareholders agreement, with the same enforceability gaps Delaware contracts have. Amendments to the UAE Commercial Companies Law, in force since 15 October 2025, now expressly permit LLCs and private joint stock companies to embed drag-along and tag-along rights directly into their memorandum or articles of association, which binds every shareholder automatically rather than only the people who signed a side contract.

What is the drag-along threshold under Saudi Arabia's Companies Law?

Saudi Arabia's Companies Law, in force since 19 January 2023, lets shareholders holding 90% or more of a company's share capital require the remaining shareholders to sell alongside them on the same terms, with tag-along giving minority holders the mirror right on a majority exit. That 90% figure is set by Article 113 for joint stock companies, with similar rights available to LLC partners. Companies that existed before the law had a two-year grace period, which closed in January 2025, to bring their constitutional documents into line.

Can a founder negotiate out of a drag-along clause?

Not out of it entirely in most venture deals — investors expect it, because no acquirer wants to buy 95% of a company and be stuck with a holdout minority shareholder. What founders can negotiate are the conditions attached to it: a minimum sale price or valuation floor below which the drag can't be triggered, a requirement that common shareholders get at least the same per-share price as preferred, and a lock-up period after a financing round before the drag-along can be exercised at all.

Do drag-along rights apply to unexercised stock options?

Drag-along clauses are written to bind shareholders, so an unexercised option isn't a share yet and isn't directly bound by the clause. In practice, acquisition agreements almost always require 100% of fully diluted ownership to participate, which means vested option holders are typically asked to exercise and sell, or have their options cashed out at the deal price, as a condition of the transaction closing — not because the drag-along clause reaches them directly, but because the buyer won't close without it.