Right of First Refusal (ROFR)
The company's or existing investors' right to buy shares before a stockholder can sell them to an outside buyer.
A right of first refusal requires a stockholder who wants to sell shares to an outside buyer to first offer the company (and sometimes existing investors) the chance to purchase those shares on the same terms. Only if the company and investors decline does the shareholder become free to sell to the original outside buyer.
ROFRs give companies meaningful control over who ends up on the cap table, preventing unwanted outside parties — competitors, activist investors, or simply unknown buyers — from acquiring a stake through a secondary purchase from an existing holder.
Companies should actively use ROFR to manage secondary sales rather than let it lapse passively — a well-run tender offer or company-facilitated secondary keeps liquidity events orderly and keeps the cap table clean.
Can a company block any secondary sale using ROFR?
Not outright — ROFR gives the company the option to match the offer and buy the shares itself (or assign that right to investors), but it can't simply prevent the sale without stepping in as a buyer.
Related terms
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