What is Right of First Refusal?
Right of First Refusal
Right of First Refusal (ROFR) is a legal clause giving the startup (or its major investors) the right to purchase shares from a selling shareholder on the same terms before they can sell to an outsider.
Why It Matters for Startups
Directly dictates the cap table and dilution structure during fundraising; understanding Right of First Refusal helps founders model equity distributions when structuring rounds for control over private stock transfers.
Detailed Deep Dive
Right of First Refusal (ROFR) is a legal clause giving the startup (or its major investors) the right to purchase shares from a selling shareholder on the same terms before they can sell to an outsider.
Frequently Asked Questions
Q:Why do companies require ROFR?
To keep competitor companies or unapproved block buyers from acquiring ownership stakes in the company.
Q:Does ROFR affect secondary sales?
Yes. Any founder or employee selling secondary shares must first offer them to the company/board under ROFR.
Quick Facts
- CategoryFunding
- Key ApplicationControl over private stock transfers
Coverage Trend12 Weeks
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