When forming or joining a Pennsylvania limited liability company (LLC), most business owners focus on issues such as contributions, profit distributions, and management authority. But what happens if a majority member wants to sell their stake? Minority members can find themselves at a disadvantage—unless the LLC’s operating agreement contains clear tag-along rights. These widely used provisions offer essential protections and foster fair outcomes when LLC ownership changes.

What Are Tag-Along Rights?

Tag-along rights, also known as co-sale rights, are contractual provisions that enable minority LLC members to participate in the sale of membership interests if a majority member (or group of members) sells their interests to an outside party. In practice, they give minority members the option, but not the obligation, to sell their proportional share at the same price and on the same terms as the majority member receives.

Illustrative Example

Imagine an LLC with three members: Alex owns 70%, Taylor owns 15%, and Jordan owns 15%. If Alex finds a buyer for their 70% interest, a tag-along provision lets Taylor and Jordan elect to “tag along” by selling their shares to the same buyer at the same per-unit price. This ensures minority members aren’t left behind with a new controlling owner they never approved.

The Case for Tag-Along Rights: Minority Protection

Tag-along rights play a critical role in leveling the playing field between majority and minority LLC members. Without such rights, minority members risk being left in an unwanted partnership with a new, potentially unknown or adversarial owner. The benefits include:

  • A fair exit opportunity at the same price and terms secured by the majority members
  • Protection against being squeezed out or marginalized by a new majority
  • Transparency in ownership changes, ensuring all affected members receive notice and disclosure

For investors and business owners without a controlling interest, tag-along rights help hedge against forced changes in the company’s management or direction.

Key Elements of a Tag-Along Provision

A well-drafted tag-along clause should establish clear procedures and avoid ambiguity. Key elements typically include:

Triggering Event

The rights are activated when a majority owner or group negotiates a sale of their interests to a third party.

Notice Requirement

The selling member(s) must provide written notice to the other members, stating all material terms—price, buyer, closing details, and deadline to elect participation.

Election Period

Minority members generally receive 15–30 days to decide whether to participate.

Proportional Participation

Each member can sell their pro rata share, matching their ownership interest.

Same Terms

Tag-along participants receive the same per-unit price and sale terms.

Default Rule

If a member does not respond within the deadline, they are typically deemed to have waived their rights.

A typical example might read:

“If any Member or group of Members holding at least 50% of the Ownership Interests proposes to sell such Ownership Interests to a third party, each remaining Member (a ‘Tag-Along Member’) shall have the right, but not the obligation, to sell their proportional Ownership Interests at the same price and on the same terms as the selling Members. The selling Members must provide written notice to all Tag-Along Members at least thirty (30) days before closing, specifying all material terms. Each Tag-Along Member shall have fifteen (15) days to elect in writing to participate. Failure to respond shall be deemed a waiver.”

How Tag-Along Rights Benefit LLCs in Pennsylvania

Pennsylvania’s LLC Act allows substantial freedom in drafting operating agreements, which means tag-along rights are not automatic—they must be created by agreement among members. Without these provisions, minority members lack default protections.

Tag-along rights help LLCs avoid disputes by:

  • Preventing surprises related to sudden ownership shifts
  • Providing clarity on member rights and obligations during the foremost transactions
  • Reducing litigation risk by creating a predictable, pre-agreed sales process

These provisions are significant for closely held businesses, family LLCs, and investment partnerships.

Tag-Along Rights vs. Drag-Along Rights

It’s essential to distinguish tag-along rights from drag-along rights:

Tag-Along Rights

Allow minority members to participate in a sale if they choose, thereby protecting their interests.

Drag-Along Rights

Permit majority members to require minority members to sell their interests in a transaction, ensuring the buyer can acquire 100% of the company.

Both provisions can be beneficial, but they should be carefully balanced.  

Practical Drafting Tips for Business Owners

  • Custom Fit: Work with a small-business-focused attorney to tailor notice periods, election deadlines, and definitions.
  • Clear Definitions: Precisely define majority members, triggering events, and sale calculations.
  • Alignment: Ensure tag-along rights integrate seamlessly with transfer restrictions and other sale-related provisions.
  • Periodic Updates: Amend the agreement as members join or circumstances evolve.
  • Member Education: Ensure all members understand how tag-along rights work to avoid confusion down the road.

Why Your Pennsylvania LLC Needs Professional Guidance

Tag-along rights are strong protections for minority members, but only when drafted clearly and correctly. Boilerplate language or generic templates often fail to address the specific needs of your LLC or anticipate real-world sale scenarios.

Professional legal guidance ensures your operating agreement:

  • It is tailored to Pennsylvania law and your management structure
  • Clearly defines and balances both tag-along and drag-along provisions
  • Provides all members with a fair and efficient process for significant sales

If your LLC’s operating agreement lacks tag-along language, or you’re forming a new venture, Spengler & Agans can provide a comprehensive review. Early planning helps prevent disputes and protects the company’s long-term success.

Speak to Spengler & Agans Now

If you want to protect minority interests or strengthen your operating agreement with well-crafted tag-along rights, reach out to Nathan Wenk at Spengler & Agans. Nathan helps Pennsylvania business owners create clear, enforceable contracts that safeguard all members.

Visit us online to schedule a consultation.