Most companies that raise investment (on Crowdcube or elsewhere) include a “drag along” procedure in their articles of association. The procedure is designed to ensure that minority shareholders cannot block an exit by the majority.
The details of the drag along procedure will vary from one company to another, so you should read the articles of association for each company you consider investing in.
In general terms, where a drag along applies, the majority shareholders can force the other shareholders to sell their shares on the same terms, to the same buyer.
- The founders hold 80% of the shares in Company A. Crowdcube investors hold the other 20% of the shares.
- Buyer X agrees to buy the founders’ shares for a price of £5 per share.
- Buyer X drags along the Crowdcube investors, requiring them to also sell their shares for £5 per share. In these circumstances, Crowdcube investors cannot refuse to sell.
- Buyer X acquires 100% of the shares in Company A.
The price investors receive in a drag along scenario will be that which was agreed by the majority sellers. This could be less than you originally paid for your shares.