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.
In practice, the ROFR usually cascades. A holder who wants to sell delivers a transfer notice with the share count, price, buyer, and terms; the company gets the first chance to buy some or all of the shares; if it passes, investors typically get a secondary right to buy their share of what's left; only then can the holder sell to the original buyer, on the noticed terms and within a set window, or the process restarts.
Boards use the ROFR actively. Rather than simply blocking a sale, they often waive or steer it — for example, redirecting the purchase to an existing investor at the same price when they don't want an unfamiliar fund on the cap table. Transfers to permitted transferees, such as family members or estate-planning trusts, are commonly carved out.
ROFR is often just one gate. Many companies' bylaws or stock agreements separately require board approval for any transfer, and clearing the ROFR doesn't clear that requirement. Running the process out of order — negotiating a deal before the notice goes to the company — can void the sale.
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.
What's the difference between ROFR and co-sale (tag-along) rights?
ROFR is the right to buy a seller's shares ahead of the outside buyer. Co-sale lets investors sell a proportional amount of their own shares alongside the seller. They usually live in the same agreement and trigger in sequence.
Does a ROFR apply to all shareholders?
Typically it binds founders and other significant common holders (and often all common via bylaws), because it's designed to control who buys into the company. Preferred investors selling their own shares are often not subject to the same right.
How long does the ROFR process take?
It depends on the notice periods in the agreement — the company's window, then the investors' window, then a deadline to close with the outside buyer — and real transactions often take longer when boards negotiate. Build it into any secondary timeline.
Related terms
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