How Does Right of First Refusal Work
May 4 2022 0

How Does Right of First Refusal Work?

Right of first refusal (ROFR) gives one or more parties the ability to enter into an agreement before the opportunity is offered to others. The party or entity that has the ROFR can decide what path they want to take. They can either enter into the business transaction or refuse it. If they decide to refuse an agreement, then the entity offering the opportunity is free to open up the deal to others and accept those offers.

Often, where real estate is concerned, lessees that currently reside in property prefer to have a ROFR. They get to be the first notified about properties that they may want which eliminates the need to compete with other bidders. But, normally when these contracts are made that include ROFR, there is not an indefinite amount of time for those that have the ROFR to take when it comes to making a decision. As such, if the individuals with the ROFR expire their time, then the benefit of their position is no longer valid and the seller can start to collaborate with others.

Releasetate transactions and corporate entities many times include ROFR clauses in their contracts. For help with determining if ROFR makes sense for your business or for any other questions about how this process works, the Los Angeles business attorneys at Leiva Law Firm can provide legal guidance and assistance.

How ROFR Impacts Corporations

How Does Right of First Refusal WorkCorporate structured businesses that have shareholders may prefer to have the option of ROFR. The reason is that, with such a benefit, more control over the company can be leveraged. Without ROFR, one shareholder who decides to leave a venture can just market their shares to a third party thus ensuring that other shareholders lose the rights to valuable assets that may be desirable.

For sellers, though, ROFR can limit the number of financial gains that can be achieved with their assets because they will be restricted for a certain period of time to only those that have the ROFR. As such, they will be unable to negotiate with other parties that may offer higher, more competitive bids.

When ROFR is established it must be so in a binding legal contract. The terms by which the ROFR operates can be tailored to the interests of the parties involved. This could include defining certain permissible transfers or only allowing founders the ability to purchase shares before others get the chance, for example.

It is important to understand your rights and your responsibilities when you are starting a business and especially if you will be collaborating with one or more shareholders. An effective and comprehensive shareholder agreement should be carefully and thoroughly written to keep your and the company’s best interests in mind. In the shareholder agreement, one topic that could be approached is ROFR terms.

Speak with a Corporate Business Attorney in California Today

The Leiva Law Firm has the Los Angeles business litigation attorney you want on your side when you are working through all legal aspects of business formation and operations, and for assistance with legal challenges that may arise. For questions or to meet and learn more about how the effective Los Angeles shareholder agreement attorney at Leiva Law can help you, please call (818) 519-4465 today.

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