What is right of first refusal?
Right of First Refusal (ROFR) is a contractual right giving designated parties (typically existing shareholders or the company) the option to match a third-party offer to purchase shares before the proposed sale can proceed. ROFR provisions appear in shareholder agreements, founder shareholder agreements, and venture capital deal documentation to control shareholder composition and preserve information confidentiality.
ROFR mechanics
Standard ROFR process. (1) Trigger event — shareholder receives bona fide third-party offer to purchase shares. (2) Notice obligation — selling shareholder must notify ROFR holders with offer details (price, terms, buyer identity). (3) ROFR exercise window — ROFR holders have defined period (typically 15-30 days) to elect to match the offer. (4) Outcome — if exercised, ROFR holders buy at offered terms; if not exercised, original sale to third party proceeds. The mechanism preserves third-party offer terms while giving existing parties priority to maintain ownership.
ROFR vs ROFO distinction
Two related but different mechanisms. (1) ROFR (Right of First Refusal) — third-party offer must be in place; ROFR holder can match. (2) ROFO (Right of First Offer) — selling shareholder must offer to ROFO holders first; only if they decline can third-party offers be considered. ROFR is more seller-friendly (preserves third-party negotiation); ROFO is more existing-holder-friendly (eliminates need for third-party negotiation if existing holders want shares).
Where ROFR appears
Five typical applications. (1) Founder shares — company and other founders have ROFR on founder share transfers. (2) Investor shares — company and other investors have ROFR on later-stage share transfers. (3) Co-investment rights — ROFR on follow-on rounds. (4) Joint venture exits — ROFR on JV partner share transfers. (5) Real estate — ROFR on property purchases. Each application balances different parties’ control interests.
ROFR drafting considerations
Four design parameters. (1) Scope — does ROFR apply to all transfers or only to non-affiliate transfers? (2) Exercise window — how long do ROFR holders have to respond? (3) Match requirements — must ROFR holders exactly match terms or just price? (4) Cascading rights — if first ROFR holder declines, do other holders get sequential opportunity? Each parameter affects ROFR’s practical impact on share liquidity.
ROFR limitations
Three practical constraints. (1) Chills market — potential buyers may avoid offers knowing ROFR holders can match, reducing market interest. (2) Disclosure risk — selling shareholder must disclose detailed offer terms, potentially compromising buyer confidentiality. (3) Cash requirement — ROFR holders must have cash to exercise; structurally limits effectiveness for impecunious holders.
Türkiye context
For Türk-incorporated companies, TTK Article 460-491 govern share transfer restrictions; ROFR provisions must be properly drafted in articles of association or shareholder agreements to be enforceable. Türk corporate practice typically includes ROFR provisions in founder shareholder agreements and VC term sheets, with care to ensure SPK-licensed activities don’t conflict with ROFR exercise procedures.
Related: ROFO, Tag-Along, Drag-Along.
Newer related concepts: Observer Rights.