Right of First Refusal
Also called: ROFR
A right of first refusal gives existing shareholders or the company the first opportunity to buy shares before they can be sold to an outside party, on the same terms offered externally. It's distinct from pre-emption rights, which apply to newly issued shares rather than an existing shareholder's sale.
In more detail
ROFR and pre-emption rights are frequently confused but govern different events: pre-emption applies when the company issues new shares (protecting against dilution); ROFR applies when an existing shareholder wants to sell their existing shares to someone else.
For the mechanism to be meaningful, it needs a real process — a defined notice period during which the outside offer's terms are disclosed to existing shareholders, and a window for them to match it before the external sale can proceed.
A ROFR that's too slow or cumbersome can chill legitimate exit opportunities — a shareholder with a genuine buyer may lose the deal if the internal matching process drags on too long, so the timeline matters as much as the right itself.
A shareholder receives a genuine offer to buy their shares from an outside investor. The ROFR clause requires them to first give existing shareholders 30 days to match the offer's price and terms — only if none do can the sale to the outside investor proceed.
What our lawyers check
- The notice period and process for offering shares internally before an external sale
- Whether the matching terms must be identical to the external offer
- How ROFR interacts with drag-along and tag-along rights in the same agreement
- Whether the timeline is realistic enough not to kill genuine exit opportunities
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
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