The Right of First Refusal (ROFR) gives a shareholder the right to purchase shares from another shareholder before they are sold to a third party. This means that if a shareholder wants to sell their shares, they must first offer them to the other shareholders at the same price and terms before they can sell them to an outside party. This ensures that the current shareholders maintain control over the company and prevents dilution of ownership.
Co-Sale Rights, on the other hand, give shareholders the right to sell their own shares alongside a shareholder who is selling their shares. This means that if a majority shareholder wants to sell their shares, minority shareholders have the option to sell their own shares as well. This can be beneficial for minority shareholders who may not have the same access to buyers as the majority shareholder.
However, it’s important to negotiate and draft these clauses carefully to avoid any confusion or disputes down the line. For example, it’s important to define the terms of the ROFR, such as the price at which the shares will be sold and the timeframe for exercising the right. It’s also important to consider the consequences of exercising the right, such as increased debt or dilution of ownership.
In addition to negotiating these clauses, it’s important to work with a qualified attorney to draft them into the agreement. This will ensure that the language is clear and unambiguous, and that everyone involved understands their rights and obligations.
Overall, understanding the Right of First Refusal and Co-Sale Rights is crucial for protecting your interests in business transactions. These clauses can help you maintain control over the company and avoid dilution of ownership, but they must be negotiated and drafted carefully to avoid any confusion or disputes down the line.
