Right of First Refusal Agreements

Your company may want the investors who buy stock in the company to execute a Right of First Refusal Agreement. This agreement requires the shareholders to grant the company a right to match any offers for their stock, and thus to preempt any other buyers. Such an agreement may help to keep your company’s stock in friendly hands.

The Right of First Refusal Agreement can also be expanded to provide the option or the obligation for the company to buy back the shares of a shareholder who has died or left the employment of the company.

Sometimes, investors may insist on a Right of First Offer Agreement in lieu of a Right of First Refusal Agreement. This agreement provides that the shareholder can first come to the company with a proposed price and terms for the shares to be sold. If the company turns down the offer, then the shareholder is free to sell the stock to any third party, as long as the price is the same or greater than that offered to the company. This type of agreement may be somewhat more appealing to an investor than a Right of First Refusal Agreement.