The Flawed Terms in VC Deals

The concept is taken from partnership law, where dissolution can be forced upon all partners even if only a handful of partners vote for it -- the partnership assets are liquidated and the proceeds distributed.

A drag along basically forces the organization to liquidate if the majority shareholders want to -- and prevents the minority shareholders from taking any steps to challenge it.

Drag along provisions are generally unenforceable in America if they prevent the minority shareholders from filing court action to challenge the transaction, or otherwise prevent minority shareholders from exercising rights under the law or under the contract which are not expressly waived in the language of the drag-along provision itself.