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What is a drag-along right in an Israeli shareholders agreement and how does it work?

A drag-along right is a clause in a shareholders agreement that allows a majority shareholder or defined control group to compel minority shareholders to sell their shares on the same terms when the majority agrees to sell the company to a third-party buyer. The Companies Law 5759-1999 provides no statutory drag-along mechanism — the right must be expressly created in the shareholders agreement or the company's articles of association. Its purpose is to enable a clean exit: a buyer seeking 100% of an Israeli company will often decline to proceed if minority shareholders can block the sale by refusing to participate.

The Companies Law 5759-1999 governs the structure of Israeli companies but contains no built-in drag-along provision. The right is entirely contractual, which means its enforceability depends on how carefully it is drafted. For enforcement, a majority shareholder invoking a drag-along clause must demonstrate that the transfer strictly meets the conditions written into the agreement: a minimum valuation or price threshold, a same-terms requirement ensuring the minority receives identical per-share consideration, a proper notice period, and compliance with any required board or shareholder approval process. Israeli courts will not read a drag-along clause expansively — ambiguities will be construed against the party seeking to exercise the right. Court enforcement of a drag-along against a recalcitrant minority shareholder is available under Section 194 of the Companies Law, which gives the District Court authority to order a compelled share transfer, though this route is slower than straightforward contractual compliance. The full landscape of Israeli shareholder rights and obligations is covered in Shareholder Agreements in Israel: What Foreign Investors Need to Include.

For foreign investors in Israeli startups and growth-stage companies, drag-along clauses are standard practice and typically require a defined majority — often 65% to 75% of shares — to approve the transaction before minority holders can be compelled to sell. The clause almost always travels with a reciprocal tag-along right: if the majority agrees to sell, minority shareholders have the right to join the sale on the same terms rather than being left behind in a company with new controlling owners. Foreign investors should verify that the drag-along threshold in any Israeli investment agreement is calibrated to the actual ownership structure — a drag-along requiring 90% approval may effectively never trigger if no single investor holds that proportion. Israeli standard-form venture capital agreements and most early-stage term sheets include drag-along and tag-along provisions as a paired package, and omitting either creates a structural imbalance that can complicate future exit transactions.

⚖ In Practice
  • Governing law: Companies Law 5759-1999 (contractual basis, no statutory drag-along); court enforcement via Section 194 (compelled share transfer)
  • Competent authority: District Court — Economic Division (Beit Mishpat HaMechozi) for enforcement proceedings
  • Typical trigger threshold: 65–75% majority shareholder approval in early-stage Israeli companies; varies by agreement and investment round
  • Same-terms requirement: minority shareholders must receive identical per-share price and consideration type as the majority — no side payments or preferential treatment for majority only
  • Paired with tag-along: drag-along and tag-along rights should always appear together; tag-along protects the minority from being left behind when the majority sells

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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