What is Right of First Refusal (ROFR)?

A Right of First Refusal (ROFR) is a contractual right that gives a specific party (usually the company or its major investors) the option to purchase shares from a selling shareholder before they are offered to any third party. The party with the ROFR must match the terms of the third-party offer.

Base Term for Startups: ROFR is a standard clause in shareholder agreements. It gives the company and its key investors control over who can become a shareholder, preventing shares from being sold to unknown or potentially hostile parties.

Process: A shareholder wanting to sell their shares must first obtain a bona fide offer from an external buyer. They must then present this offer to the ROFR holders, who have a set period (e.g., 30 days) to decide if they want to purchase the shares themselves at the same price and terms.

Base Term Example: A founder wants to sell a portion of their shares. They get an offer from an outside buyer. The ROFR clause forces them to first offer those shares to the company's lead investor under the exact same terms.