Drafting Drag along Triggers in International Shareholders Agreements
Drafting cross-border drag-along triggers requires verifiable voting thresholds, explicit cash valuation floors, and deeded power-of-attorney execution clamp mechanics.
Bona Fide Third-Party Buyer
Meaning
An arm’s length purchaser acting in good faith without prior affiliation to existing shareholders or notice of equity encumbrances. Right of first refusal provisions require a selling shareholder to present an unconditioned, arm’s length offer from a bona fide third-party buyer before transferring equity. The qualification prevents collusive pricing between related entities designed to trigger or bypass pre-emption rights.
If the proposed transferee shares management, common ownership, or familial ties with the seller, the offer fails to satisfy the contractual threshold.
Contractual Qualification
Shareholders agreements establish strict evidentiary burdens to confirm independence before share transfers proceed. The selling shareholder must supply affidavits or copy contracts proving the bona fide third-party buyer holds no secret side letters, equity swaps, or fee-rebate agreements with the seller. Directors review these transaction documents during the notice window to verify that the price represents genuine cash value.
When suspicion of collusion arises, board approval for share registration is withheld pending independent audit.
Pre-emption Protection
Existing investors rely on third-party verification to ensure right of first refusal mechanisms operate fairly. Without an independent benchmark, founding shareholders could draft inflated purchase agreements with friendly entities to force co-investors into purchasing equity at artificial valuations. A bona fide third-party buyer establishes a genuine market clearing price for the underlying equity.
Transfer Execution
Settlement occurs only after statutory pre-emption windows expire without exercise by existing holders. Once verified, the bona fide third-party buyer signs a deed of adherence to join the target company’s shareholders agreement.