What is Right of First Refusal?
Right of First Refusal
Right of First Refusal (ROFR) is a shareholder provision giving the startup or major investors the right to purchase shares from a selling shareholder on the same terms before they can sell to an outside buyer.
Why It Matters for Startups
Governs the legal rights and ownership distribution of the entity; configuring Right of First Refusal 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 Refusal (ROFR) is a standard cap table control. It requires sellers to present outside offers to the company first, giving existing stakeholders the opportunity to match the offer and keep the equity internal.
Frequently Asked Questions
Q:Who holds the ROFR in a startup?
Typically the company holds the first right to buy back the shares, and major investors hold the second right if the company declines.
Q:What is the advantage of ROFR for startups?
It allows the company to prevent competitor acquisitions and maintain cap table control.
Quick Facts
- CategoryLegal
- Key ApplicationShareholder agreement drafting and equity transfer control
Coverage Trend12 Weeks
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