Rights & follow-on
Right of first refusal
Also called ROFR
The right of the company or its investors to buy shares that a shareholder wants to sell, on the same terms as the proposed third-party buyer, before that sale can proceed.
In plain English
A ROFR controls who joins the register. A shareholder who has agreed a sale to an outside buyer must first offer the shares to the holders of the right, at the same price and terms. Only if they decline may the sale proceed.
The purpose is defensive: it stops shares reaching competitors, awkward parties or simply people the company would rather not have as shareholders. It also gives existing investors a way to increase their position in a company they like without a new financing round.
The cost falls on whoever wants to sell. A ROFR adds delay — typically thirty to sixty days of notice periods — and it chills third-party interest, because a buyer who knows their offer may simply be matched has less incentive to do the work of making one. In private company shares, where buyers are scarce, this can be the difference between a sale and no sale.
ROFRs are usually paired with a co-sale or tag-along right, so that investors who decline to buy can instead sell alongside. The two are conventionally drafted as a single mechanism.
What it means for your cheque
For angels the ROFR is mostly an obstacle rather than a benefit. You are unlikely to be the one exercising it, and you are quite likely to be the one wanting liquidity after eight years in a company that has not exited. Understand the process length before you need it.
The related question is whether transfers are permitted at all. Many shareholders' agreements require board consent for any transfer, on top of the ROFR — which means selling is not a right you hold but a permission you request. Check both before assuming your shares are sellable.
Do the arithmetic
Selling into a ROFR — the actual timeline
You have found a buyer for your shares at $4.00 each. The shareholders' agreement contains a company ROFR followed by an investor ROFR, each with a 30-day notice period, plus a board consent requirement.
| Day 0 | You give the company written notice of the proposed sale and its terms |
|---|---|
| Days 0–30 | The company may elect to buy at $4.00 |
| Days 30–60 | If it declines, preferred holders may elect to buy at $4.00 |
| Days 60–75 | Any co-sale rights are exercised — other holders may join your sale |
| Day 75+ | Board consent to the transfer, then completion |
| Realistic elapsed time | three to four months, if nothing goes wrong |
| Risk to the buyer | they may spend three months and be matched at the end |
The mechanism did not prevent the sale — it made it slow and uncertain enough that many buyers walk away. That is the practical effect of a ROFR on small holdings.
At the table
What to negotiate
- Read the transfer provisions before investing. Knowing your shares are hard to sell is better than discovering it.
- Ask whether transfers to family members, trusts or a personal holding company are carved out. Estate-planning transfers usually should be.
- Check the notice periods and whether they run consecutively or concurrently. Consecutive periods double the timeline.
- Establish whether board consent is required in addition to the ROFR, and whether it may be withheld at discretion.
- Ask whether the company operates or permits any structured secondary process — a tender offer is far easier than a bilateral sale.
Right of first refusal: common questions
Can the company block my sale entirely?
Does the ROFR apply to gifts or transfers to a trust?
How does a ROFR differ from a right of first offer?
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