What is a “right of first refusal” on Company sales?
A right of first refusal is a contractual provision permitting investors to acquire shares proposed to be sold by the company in proportion to such investors pre-sale percentage ownership. The principle purpose of this provision, from the investor’s point of view, is to put the investor in a position to prevent ownership dilution – that is to permit the investor to keep the same percentage ownership in the company even as the company raises additional capital. There are customary negotiated exceptions to this right such as shares to be issued under option plans, to equipment lessors and others.
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