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ROFR vs ROFO When structuring investment agreements, the Right of First Refusal (ROFR) and the Right of First Offer (ROFO) are two important clauses that can shape ownership transfers. Let’s explore how these rights work and their implications for both companies and investors. For Investors: Right of First Refusal (ROFR) ROFR allows investors to match any third-party offer a shareholder receives before the sale can proceed. This gives investors the power to keep shares within existing shareholders and maintain their influence in the company. It ensures that an investor has control over who enters the shareholder pool and can protect their stake by matching any outside offer. It’s a safety net to avoid dilution of control. Right of First Offer (ROFO) With ROFO, if a shareholder wants to sell, they must first offer their shares to existing shareholders before approaching outside buyers. However, the seller is not bound to accept the existing shareholders' offer if it's lower than expected. It allows investors to buy shares before they hit the open market but offers less certainty than ROFR since the seller can still pursue third-party offers. For Companies: Right of First Refusal (ROFR) ROFR gives the company more control over who holds equity, ensuring existing shareholders can match outside offers. However, it can deter potential third-party buyers, as they may not want to invest time and resources in a deal that might be matched. While it offers protection, ROFR can slow down the sale process and make external negotiations more complex, which might affect the company’s growth or strategic moves. Right of First Offer (ROFO) ROFO helps simplify the process by giving existing shareholders an early opportunity to buy shares. It also creates a competitive atmosphere, allowing shareholders to make a first move without immediately locking the seller into an outside offer. For the company, ROFO allows flexibility in ownership transitions without discouraging third-party buyers, as it doesn’t bind the seller to internal offers. Both ROFR and ROFO serve to protect existing shareholders but in different ways. ROFR is more restrictive, offering greater protection but potentially slowing down sales, while ROFO is less rigid and offers more flexibility for both parties. Choosing the right clause depends on balancing investor security and the company’s need for smooth transactions.