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«Drag Along»

30/ 11/ 2021
  Author: Kateryna Maevska, Lawyer of Dynasty Law & Investment English corporate law contains an interesting principle of corporate rights management, which should be borrowed from the Ukrainian branch of corporate law. This principle is Drag Along. The essence of this principle is as follows: lets say in a limited liability company there are three founders with unequal shares in the authorized capital of the company, and the shares of two participants together exceed 50% of the authorized capital of the Company. If the aggregate majority of the members of such a company wishes to sell more than 50% of the share in the authorized capital of the Company to a third party from whom the offer to purchase such a share (Drag Offer) is received, these participants acquire the right to require other members to join the sale and sell their share. to a third party on the same terms that were offered by her in the received offer. So in this example, provided that two of the three members of the Company accept an offer from a third party to sell their shares, which together exceed 50% of the share capital, the third party on the principle of Drag Along has an obligation to sell its due share in such a Company. At the same time, the specified principle Drag Along does not provide for the right of a participant with a share of less than 50% to refuse to sell his share and not to join the offer of sale accepted by other participants. According to the norms of English corporate law, this principle is implemented in practice through notification of the Company / its executive body on the intention of participants to use the principle of Drag Along, and the latter on the basis of the notification, in turn takes all actions to register new owner. The application of this principle Drag Along minimizes the number of possible corporate disputes related to the alienation of corporate rights and blocking the full transfer of corporate rights of the Company, initiated by members of the Company who own small shares in the authorized capital. Borrowing this principle from Ukrainian corporate law would provide additional legal security for corporate rights holders in potential corporate conflicts.

Author: Kateryna Maevska, Lawyer of Dynasty Law & Investment

English corporate law contains an interesting principle of corporate rights management, which should be borrowed from the Ukrainian branch of corporate law.

This principle is “Drag Along”.

The essence of this principle is as follows: let’s say in a limited liability company there are three founders with unequal shares in the authorized capital of the company, and the shares of two participants together exceed 50% of the authorized capital of the Company.

If the aggregate majority of the members of such a company wishes to sell more than 50% of the share in the authorized capital of the Company to a third party from whom the offer to purchase such a share (Drag Offer) is received, these participants acquire the right to require other members to join the sale and sell their share. to a third party on the same terms that were offered by her in the received offer.

So in this example, provided that two of the three members of the Company accept an offer from a third party to sell their shares, which together exceed 50% of the share capital, the third party on the principle of “Drag Along” has an obligation to sell its due share in such a Company. At the same time, the specified principle “Drag Along” does not provide for the right of a participant with a share of less than 50% to refuse to sell his share and not to join the offer of sale accepted by other participants.

According to the norms of English corporate law, this principle is implemented in practice through notification of the Company / its executive body on the intention of participants to use the principle of “Drag Along”, and the latter on the basis of the notification, in turn takes all actions to register new owner.

The application of this principle “Drag Along” minimizes the number of possible corporate disputes related to the alienation of corporate rights and blocking the full transfer of corporate rights of the Company, initiated by members of the Company who own small shares in the authorized capital.

Borrowing this principle from Ukrainian corporate law would provide additional legal security for corporate rights holders in potential corporate conflicts.

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