Drag-Along Rights

Drag-along rights grant the ability of any majority shareholder in a given organization to force minority shareholders to sell their shares. They are generally triggered by sudden mergers or acquisitions by third parties.

This glossary provides an overview of some key legal terms for startups. It's essential to consult with a legal professional to ensure a comprehensive understanding of these terms and their implications for your specific situation.

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Mergers And Acquisitions

Mergers are like marriages in that both companies agree to the union, and both give up a certain amount of control and independence to become a new institution. After a merger, the newly combined entity takes on a new name and issues new stock in that name. Typically, mergers occur between companies of roughly equal size. Acquisitions, as the name suggests, are an outright purchase of one company by another, usually a larger company. Even the language surrounding acquisitions is more aggressive — the company being purchased is referred to as the “target company.” If the acquiring company buys 51% or more of the target company’s stock, it can assume control whether the target company likes it or not, in which case the acquisition is called a “hostile takeover.”

Confidential Information Memorandum

A confidential information memorandum (CIM) gives potential buyers the information they need in order to make an offer to buy a business.

Fund Of Funds

A fund of funds or "FOF" is a type of investment fund that only invests in other investment funds. This means that the overall portfolio of investments it manages consists purely of other investment funds that may or may not be managed by the same company.