Right of First Refusal

A right of first refusal (ROFR) gives the company the first chance to buy your shares on the same terms as any outside buyer before you can sell to that buyer. It’s mainly used to control who ends up on the cap table and to keep out unwanted or risky shareholders.

How it works in practice

• You find a buyer and agree on a price and terms.
• You must notify the company and present the offer.
• The company has a set period (e.g., 30 days) to decide whether to:
  • Exercise ROFR: they buy your shares at the same price/terms as the buyer; you get paid by the company, and the outside buyer gets nothing.
  • Decline ROFR: you’re then allowed to sell to the outside buyer on those same terms.

Key implications for employees

• ROFR restricts liquidity: you can’t freely sell; you must clear any sale with the company first.
• Many secondary buyers avoid deals where ROFR exists, because the company can simply match their offer and take the deal, making their effort pointless.
• Companies typically exercise ROFR only when the price looks attractive to them (e.g., they think the shares are worth more than the offer). If they think the price is high, they’re more likely to buy; if they think it’s low, they’ll usually let the sale go through.

Example recap

• You’ve vested 50% of your grant.
• A buyer offers $5/share, implying a $50M valuation.
• With ROFR: you notify the company; they have ~30 days to match. If they match, they buy your shares at $5. If they don’t, you may sell to the buyer (if the buyer is still interested).
• Without ROFR: you can sell directly to the buyer; the company has no veto or matching right.

Other related concepts

• Co-sale (tag-along) rights: If a founder sells, co-sale can let you sell a proportional amount of your shares alongside them. This is generally more employee-friendly than a pure ROFR in your direction.
• Lock-ups + ROFR: Some agreements combine multi-year lock-ups (no sales allowed at all for a period) with ROFR afterward, which can make your equity very hard to monetize.

Related terms

• Secondary Sale — selling your shares to a third party; ROFR directly affects your ability to do this.
• Cap Table — the ownership ledger ROFR is meant to protect from unwanted shareholders.
• Common Stock — the type of shares employees usually hold, often subject to ROFR.

Always read your stock option and shareholder agreements carefully to see:

• Who holds ROFR (company, investors, or both),
• What triggers it,
• The timelines for notice and exercise,
• Any lock-up or transfer restrictions layered on top.