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What is a tag-along right in an Israeli shareholders agreement and how does it protect minority investors?

A tag-along right (also called a co-sale right) gives a minority shareholder the contractual right to sell their shares alongside a majority shareholder on the same price and terms when the majority proposes to transfer their stake to a third-party buyer. The Companies Law 5759-1999 provides no statutory tag-along mechanism — the right must be expressly created in the shareholders agreement and, ideally, reflected in the company's articles of association to bind the company itself. If the majority fails to honor a tag-along right, the investor can seek specific performance or damages in the District Court under the Contracts (Remedies for Breach of Contract) Law 5731-1970.

The tag-along right addresses a fundamental minority risk: a majority shareholder who sells their stake to a new controlling buyer may leave the minority locked into a company with a new owner they did not vet and cannot exit from. Without a tag-along clause, the minority has no legal right to piggyback on the majority's exit at the same valuation. When drafting the tag-along provision in an Israeli shareholders agreement, the parties must specify several key terms: the trigger threshold (what percentage sale by the majority activates the right), the formula for allocating the buyer's total purchase capacity between the majority and the exercising minority, the notice period within which the minority must declare their exercise of the right (typically 20–30 days from receiving formal transfer notice), and the requirement that the minority sell on identical price, payment method, and representations as the majority. A tag-along that fails to specify these elements creates ambiguity that courts will have to resolve.

Foreign minority investors should understand how the tag-along interacts with the companion drag-along provision, which typically appears in the same agreement. The drag-along allows a majority to compel the minority to sell alongside them; the tag-along gives the minority the right — but not the obligation — to sell alongside the majority. A well-balanced agreement provides both: the majority's exit is not blocked by a reluctant minority (drag-along), while the minority is not stranded with a new owner they had no say in choosing (tag-along). Under Israeli company law, if the tag-along right is incorporated only in the shareholders agreement and not in the company's articles, a third-party buyer who is unaware of the agreement may take free from it. Courts have allowed claims in damages against the transferor in such cases, but the transfer itself may not be unwound. Ensuring the tag-along is reflected in the company's registered articles is therefore the stronger structural protection.

⚖ In Practice
  • Governing law: Companies Law 5759-1999 (no statutory tag-along — must be contractual); Contracts (Remedies for Breach of Contract) Law 5731-1970 for enforcement
  • Competent authority: District Court or agreed arbitration tribunal for enforcement of the tag-along right
  • Key drafting points: trigger threshold, proportionality formula, notice period (typically 20–30 days), same-price-and-terms guarantee, closing mechanics
  • Exercise window: market standard in Israeli venture-backed companies is 20–30 days from receipt of written transfer notice from the majority
  • Structural protection: reflect the tag-along in both the shareholders agreement and the company's articles of association to bind third-party buyers

From the full guide: Shareholder Agreements in Israel: What Foreign Investors Need to Include

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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