Right of First Refusal (ROFR)
Definition
The company's right to match any outside offer to buy your shares before you can sell to a third party. When you find a buyer for your private company shares, you must first offer the shares to the company at the same price. If the company declines, you can proceed with the outside sale (subject to board approval).
Real-World Example
You want to sell 5,000 shares to a secondary buyer at $25/share. Under ROFR, you must first offer those shares to the company at $25/share. The company has 30 days to decide. If they exercise ROFR, they buy the shares. If they pass, you can complete the sale to the outside buyer.
Common Mistake
Not factoring ROFR delays into your timeline. The ROFR process can take 30-60 days. If you are selling shares for a time-sensitive reason (house purchase, tax payment), the ROFR delay can cause problems. Also, the company exercising ROFR at a low price effectively caps your sale price.
Why It Matters
ROFR gives the company control over who becomes a shareholder and at what price. It can block or delay your ability to sell shares. Understanding ROFR helps you plan liquidity events realistically.
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