Right of First Refusal (ROFR)
Contractual right granted to an existing shareholder or partner to acquire shares offered to a third party, on the same terms, before the sale can be completed.
Definition
The right of first refusal is a clause frequently found in shareholders’ agreements. It gives one or more existing shareholders priority to buy another shareholder’s shares if they want to sell, before a sale to a third party can take place. Concretely, if you receive an offer from an outside buyer, your partners have the right to match that offer and buy your shares on the same terms.
In French-language Quebec documentation, you’ll see droit de préemption used for the same concept.
This mechanism exists to protect remaining shareholders against the arrival of an unwanted partner, but it has direct implications for your ability to sell freely.
Why the right of first refusal matters in a business sale
Before even taking your business to market, you need to check whether a shareholders’ agreement is in force and whether it contains a right of first refusal. Ignoring this clause can derail a transaction at an advanced stage — after months of negotiation and tens of thousands of dollars in professional fees.
The right of first refusal also shapes the negotiation dynamic. A serious prospective buyer will want to know up front whether a partner can block or delay the sale. If so, some buyers will hesitate to invest time and money in a process whose outcome depends on a third party.
Strategically, the right of first refusal doesn’t necessarily prevent a sale, but it imposes a process: you have to offer your shares to your partners first, give them a response period (often 30 to 60 days), and only if they decline can you sell to the third party. That delay can complicate timelines and cool off buyers in a hurry.
What every seller should know
- Re-read your shareholders’ agreement before any sale steps — the right of first refusal is often buried in the share transfer clauses.
- This right doesn’t set the price: it simply requires your partners to match the terms of the outside offer, including price, payment terms, and timing.
- If you’re the sole shareholder, the right of first refusal doesn’t apply — but also check commercial leases and franchise agreements, which sometimes contain similar clauses.
- An experienced broker can structure the sale process to respect the right of first refusal without compromising confidentiality or the transaction timeline.