What is Right of First Offer?
Right of First Offer
Right of First Offer (ROFO) is a shareholder provision requiring a shareholder who wishes to sell stock to first offer those shares to the company or major investors on specified terms.
Why It Matters for Startups
Governs the legal rights and ownership distribution of the entity; configuring Right of First Offer is critical for managing long-term cap table health and alignment during shareholder agreement drafting and equity transfer control.
Detailed Deep Dive
Right of First Offer (ROFO) regulates private share transfers. It gives the company or existing investors the first opportunity to buy shares, preserving cap table control while providing a more seller-friendly process than ROFR.
Frequently Asked Questions
Q:How does ROFO differ from ROFR?
Under ROFO, the seller must offer shares to existing holders first before talking to outsiders; under ROFR, the seller negotiates an outside deal first and then offers existing holders the right to match it.
Q:Why is ROFO preferred by sellers?
It makes it easier to find outside buyers, as buyers dislike negotiating deals that can be easily matched and taken by existing investors under a ROFR.
Quick Facts
- CategoryLegal
- Key ApplicationShareholder agreement drafting and equity transfer control
Coverage Trend12 Weeks
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