Glossary - ROFR

Right of first refusal (ROFR or RFR) is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party.

If the founders ever want to sell any of their shares to a third-party, the right of first refusal requires them to give the company the first opportunity to purchase the shares on the terms offered by the third-party. If the company doesn’t exercise its right of first refusal, the venture capital investor then has the opportunity to purchase the shares on the same terms. If both the company and venture capital investor forego their rights of first refusal, then the founders may proceed to sell their shares to the third-party. A right of first refusal is designed to control which parties may own a significant number of shares in the company and give the venture capital investors the first opportunity to purchase shares if they desire to do so.