Definition
Right of First Refusal (ROFR)
A right of first refusal lets existing shareholders match any offer before a holder can sell their shares to an outside party.
Under a ROFR, if a shareholder wants to sell to a third party, they must first offer the shares to the existing shareholders (or the company) on the same terms; only if those holders decline can the outside sale proceed. This keeps control within the existing group and prevents unwanted parties from entering the cap table.
ROFR is a standard transfer restriction in startup shareholders' agreements, often combined with a right of first offer (ROFO) and co-sale rights. It influences the liquidity of founders' and employees' shares.
Related terms
- Cap TableA capitalisation table (cap table) is the record of who owns what in a startup — every shareholder, option holder and convertible, with their stakes.
- Secondary SaleA secondary sale is the sale of existing startup shares from one shareholder to another, rather than the company issuing new shares.
- Tag-Along RightsTag-along rights let minority shareholders join a sale on the same terms when a majority shareholder sells their stake.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.