Shareholders’ Agreement – Transfer of shares: ROFR
In previous blog posts, we have discussed shareholders’ agreements, and matters that can be addressed by shareholders’ agreements. One of the matters that a shareholders’ agreement can address is the transfer of shares by shareholders, which was covered in this post.
A shareholders’ agreement often includes a ROFR, or “right of first refusal”, provision which is triggered when a shareholder wants to transfer shares in the company to a third party. A ROFR would generally provide that if a shareholder wants to sell their shares to a third party, they must first offer the shares to the existing shareholders on the same terms and conditions as the third party is willing to pay. If the shareholders exercise their ROFR rights, the selling shareholder will sell their shares to the existing shareholders and not the third party.
A ROFR can be restricted to certain shareholders, or apply to all shareholders in the corporation. These rights can be an effective way to ensure that you have an opportunity to purchase shares before they are sold to someone who you would rather not be in business with.
It is not uncommon for the ROFR provision to place conditions on the terms that must be offered by the third party buyer (for example, an all-cash purchase price).
Thinking of putting a shareholders’ agreement in place for your company? Contact us.