Rights of First Refusal and Company Approvals

What Is a Right of First Refusal?

A right of first refusal (ROFR) gives the company or existing shareholders the opportunity to purchase shares on the same terms as a proposed sale to a third party.

How it works. When a seller receives an offer from a buyer, the company (or designated parties) can exercise the ROFR and purchase the shares instead.

Impact on transactions. ROFR provisions can delay or prevent a sale from completing as planned. Buyers should be aware that a matched transaction may not result in a completed purchase if the ROFR is exercised.

Frequency. ROFR exercises are a regular occurrence in private secondary markets, though rates vary by company and market conditions.

Company Approval Process

Companies and certain other investors may have transfer approval rights or right of first refusal (ROFR) over any transactions. This means that if you agree to buy shares from a company employee, the company can withhold its approval of the transfer or, in the case of a ROFR, decide to buy the shares itself.

Mirai Capital takes the lead in seeking the company’s approval, and over 440+ companies have approved deals on its investing platform. Mirai Capital also has multiple direct relationships with some companies that use it as the sole official venue for trading. For those companies, investing through Mirai Capital may facilitate a more efficient approval process.