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CS Executive · Setting Up of Business, Industrial and Labour Laws · Business Collaborations

In a 50:50 incorporated JV, the agreement says the foreign partner may sell its shares only after first offering them to the Indian partner on the same terms. Another clause lets either partner join in if the other sells to a third party. Which pair of terms correctly names these two clauses?

The clauses are a right of first refusal and a tag-along right. The first obliges a selling partner to offer shares to the other partner on the same terms; the second lets the other partner join a sale to a third party. Drag-along would compel sale instead.

  1. ARight of first refusal; tag-along rightCorrect
  2. BDrag-along right; call option
  3. CLock-in; put option
  4. DNon-compete; right of first refusal

Explanation

Offering shares first to the existing partner on the same terms is a right of first refusal. A right allowing the other partner to join the sale to a third party on the same terms is a tag-along right. Drag-along would instead force the minority to sell, which is not described.

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