What is a ROFR (right of first refusal)? And how it impacts your ability to sell shares

The ROFR is a contractual provision protecting the right holder. It stipulates that an asset owner must first offer to sell their shares to the right holder before going to a third party. In other words, the right holder gets the first opportunity to say yes or no. 

Imagine you’re an early employee at a private tech startup and want to sell some of your vested shares to an outside buyer who’s offering $8 per share. Before the sale can happen, your shareholder agreement’s ROFR clause requires you to notify the company. The company then has 30 days to decide whether it wants to buy your shares itself at the same $8 price.

ROFRs typically appear in shareholder agreements, investor agreements, and employee stock agreements. ROFR provisions help founders maintain control over the cap table and prevent unwanted third-party investors. An outsider won’t be allowed to have a financial stake in the company unless the existing investors say so. 

Learn how startup equity management best practices play a key role in deciding how and when clauses like ROFRs are implemented — and how they affect shareholder control.

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Here’s how a ROFR typically works at a private company:

1. A shareholder wants to sell their shares. They first need a bona fide written offer from an outside buyer — AKA the third-party purchaser. The offer will usually include a price per share, the number of shares and payment terms.
2. Next, the shareholder must notify the company of their intent to sell. This ROFR notice typically includes a copy of the third-party offer. And it starts the ROFR process clock.
3. The company has a defined period to decide whether it wants to buy the shares. Common timelines run from 10 days up to a month. If the company chooses to exercise the ROFR, it will purchase shares on the same terms as the third-party offer. Or they can waive it by formally declining or simply letting the deadline expire.
4. If no ROFR holder exercises their rights, the seller may proceed to close the deal with the external buyer, but only on the exact terms stated in the original notice. If any material term changes, such as the price or the number of shares, the company may require the seller to restart the entire ROFR process.
5. If the ROFR was exercised, shares get transferred to the new holders and updated on the cap table.

A ROFR differs from a ROFO, or Right of First Offer. A ROFO provision permits the right holder to make an offer to the seller before they take it to a third party. A ROFR happens after a third-party buyer has already made their offer. 

Both clauses provide shareholders with an opportunity to buy shares before outsiders are brought in. With a ROFR, a seller knows they already have a willing third-party buyer, even if the right holder declines the offer. But some third-party buyers might be hesitant to get involved in a deal when they know shareholders could be waiting in the wings, eager to match their offer and buy the shares themselves. This could make it difficult to sell the shares.

With a ROFO, a buyer can make their offer without worrying about matching another offer from a third party. This could leave the seller with more questions about the true market value of their shares, because they haven’t been able to shop them around before bringing them to their company.  

ROFRs and ROFOs are both important in private market deal structuring; the best option for a company depends on its stage, strategy, and shareholders. Some shareholder agreements will even combine the two.

ROFR provisions will likely impact your ability to liquidate your shares, one way or another. They can stall a sale for weeks or months, as the shareholder must notify all right holders and wait for their responses before moving forward with any deal. 

It can be a lengthy process that might deter some third-party buyers who are wary of getting involved in a deal, knowing someone else could usurp it. And if an external buyer knows they could ultimately lose out, they might be less likely to enter a bidding war for your asset. Sellers may face limitations in shopping their shares around due to the ROFR process, potentially giving them less insight into their true market value. 

ROFRs are a common strategy for protecting companies, but they can shape how (and how easily) you sell your shares. Understanding that process up front helps avoid surprises and leads to smoother transactions. 

This guide to unlocking liquidity in the pre-IPO market walks through common friction points — including rights of first refusal — and how accredited investors are navigating them.

Always check for ROFR clauses before investing in a new company. They can protect value or delay liquidity, depending on their terms.