Right of First Refusal (ROFR)

A right of first refusal (ROFR) gives the company and/or existing investors the first opportunity to purchase shares that a shareholder wants to sell before those shares can be offered to an outside buyer. It's a standard provision in startup shareholder agreements, and it exists to give the company control over who ends up on the cap table.

Here's how it typically works: if an employee or early investor wants to sell their vested shares (say, on a secondary market or to a private buyer), they must first notify the company. The company then has a set period (usually 30 days) to decide whether to buy the shares at the same price and terms the outside buyer offered. If the company passes, existing investors usually get the next right to purchase. Only if both the company and existing investors decline can the seller proceed with the outside buyer.

ROFR provisions are particularly important for keeping your cap table clean. Without ROFR, an early employee could sell their shares to anyone — a competitor, a hostile actor, or someone who creates governance headaches. ROFR gives the company a gatekeeping function. In practice, most companies waive their ROFR for legitimate secondary sales (especially for employees who need liquidity), but having the right gives them the option to block problematic transfers.

For founders, ROFR is a governance tool — it prevents unwanted outsiders from buying onto your cap table. For employees looking to sell secondary shares, ROFR is a process you need to navigate. Understanding that ROFR exists helps you plan timing and expectations for any share sale. You can't just list your startup shares on a secondary marketplace without the company's involvement. As a founder negotiating with investors, ROFR terms can also affect your own ability to sell shares for personal liquidity.