Glossary
Right of First Refusal
A clause giving existing shareholders the first opportunity to buy shares before a seller can sell to an outside party.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
Right of First Refusal (ROFR) gives existing shareholders — usually investors — the right to purchase shares being sold by another shareholder before those shares can be offered to any outside party. If a founder wants to sell shares in a secondary transaction, investors with ROFR can match the third-party offer and buy those shares first.
ROFR protects existing investors from unknown third parties entering the cap table. It prevents a situation where a departing co-founder sells to a competitor, a problematic investor, or someone who would create governance friction. The key elements: ROFR typically has a defined notice period (10–30 days) and requires matching the exact offer terms.
India Context
Indian SHAs universally include ROFR provisions for both investor-to-investor and founder-to-third-party transfers. ROFR in India often includes a right for the company itself to purchase shares first (Company ROFR), then investors, then other shareholders. The cascading order matters — if the company doesn't exercise, investors get the option; if investors don't exercise, other shareholders do.
Example
A co-founder wants to sell 5% to a PE firm for ₹25 crore. He notifies all ROFR holders. Within 20 days, Accel (a Series A investor) exercises ROFR — they match the ₹25 crore offer and buy the 5% instead of the PE firm. The co-founder gets the same proceeds; Accel increases their stake from 20% to 25% at a known valuation. The PE firm is excluded.
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