What are Co-Sale Rights?
How Do Co-Sale Rights Work?
Let's say Company XYZ is a start-up firm looking for shares with co-sale rights.
Company XYZ also talks to a venture capital firm, which agrees to invest so much that it becomes a 55% owner in the business (giving it the majority interest).
The venture capital firm helps run the company and make it a success. Five years later, it wants to sell its stake in the business and finds a buyer, Company A, which offers to buy the shares for, say, $20 each. Because the minority shareholders have co-sale rights, they can join with the venture capital firm and offer their shares for to Company A at $20 too.
Why Do Co-Sale Rights Matter?
Co-sale rights are usually good for minority shareholders because they can liquidity.
One of co-sale rights is that the buyers of those shares (Company A, in our example) can end up with a very large majority interest in the acquired company, which may unsettle the remaining shareholders and may a new board of directors or new management is on the way.