A Right of First Refusal (ROFR) gives a shareholder the right to buy shares that another shareholder wants to sell before the shares can be offered to a third party.

The ROFR is very important. The party with the ROFR can acquire more shares in a secondary sale should it wish to do so. Moreover, however, it is a way to prevent shareholders from selling their positions to third parties whom other shareholders might not welcome. These unwelcome third parties might include financial investors with plans for the company that are at odds with those of the rest of the shareholder base, strategic investors looking for inside information about the company, or even competitors.