A right of first refusal (ROFR) controls who gets to own your company's stock. Before any shareholder sells shares to an outside buyer, the ROFR holder — usually the company first, then major investors — may buy those shares on identical terms instead.
How a ROFR works in practice
1. An employee or founder receives an offer to sell 50,000 shares at $10/share to a secondary buyer
2. The seller must notify the company with the full terms of the proposed sale
3. The company has a set window (often 30 days) to purchase at $10/share
4. If the company declines, major investors typically get a secondary ROFR window
5. Only if both decline can the sale to the outside buyer close — on terms no more favorable than those offered to the ROFR holders
Why companies want ROFRs
- Cap table control — keeps competitors, activists, and unknown parties from acquiring stakes
- Information hygiene — shareholders receive financial information; ROFRs limit who that is
- Price discipline in secondaries — a company can prevent distressed secondary sales that reset perceived valuation
Where founders should pay attention
ROFRs cut both ways. They protect the company you control, but they also apply to *your* shares when you seek personal liquidity — a slow ROFR process can chill secondary buyers who dislike waiting 30–60 days to learn whether they get the deal. Standard venture documents stack ROFR with tag-along (co-sale) rights, so a founder secondary involves notice, ROFR waiver or exercise, and co-sale election before closing.
ROFR vs right of first offer (ROFO)
A ROFO is the milder cousin: the seller must first solicit an offer from the rights holder before shopping externally, but isn't bound to match-and-block mechanics afterward. Buyers prefer ROFOs; companies prefer ROFRs.