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Right of First Refusal (ROFR)
The right to match any offer a shareholder receives before they can sell shares to a third party.
Formula
ROFR process:
- Receive bona fide third-party offer
- Present offer to ROFR holders
- Wait 30 days (typical) for response
- ROFR holders match or waive
- If waived, proceed with third-party sale
Definition
What is ROFR?
Right of first refusal gives existing shareholders (usually the company and/or investors) the option to purchase shares before they're sold to an outside party. The matching party gets to buy at the offered terms.
How ROFR Works
Shareholder receives outside offer. They must present it to ROFR holders. ROFR holders have a set time (often 30 days) to match. If matched, they buy the shares. If not, the sale proceeds.
Impact on Liquidity
ROFR can complicate secondary sales since buyers know they might not get the shares even after negotiating. Some buyers won't engage knowing ROFR exists.
Example
Employee wants to sell 10,000 vested shares.
Secondary buyer offers $5/share ($50,000 total).
Employee presents offer to company (ROFR holder).
Company has 30 days to match at $5/share.
If company matches: Company buys shares.
If company passes: Employee sells to buyer.
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