A ROFR (Right of First Refusal) is a clause in a shareholders' agreement that requires a selling shareholder to first offer their shares to existing shareholders (often investors or the company) on the same terms as an outside buyer. Only if they decline can the shares be sold externally.
Why it matters to you
ROFR can directly affect a deal you think is done. If you agree to buy unlisted shares from an employee or early investor, an existing institutional shareholder may invoke ROFR and step in to buy on your terms — leaving you empty-handed. For shares governed by a tight shareholders' agreement, confirm any ROFR is waived before paying.
Example: A buyer's pre-IPO purchase fell through when a fund exercised its ROFR and matched the price, taking the shares instead. ROFR is often paired with tag-along and drag-along rights.