Right of First Refusal (ROFR)
The company's or investors' right to buy shares before they can be sold to an outside party.
Definition
A right of first refusal gives the company (and sometimes existing investors) the right to purchase shares on the same terms offered by a third-party buyer before the seller can complete the outside sale. ROFRs are standard in startup shareholder agreements and are a common barrier to secondary sales. The company must match the buyer's offer to exercise the ROFR.
Why it matters
If you want to sell shares on the secondary market, the company's ROFR means they can block the sale by buying the shares themselves (often at a lower effective price). Even if they do not exercise, the ROFR process adds time and complexity to any sale.
Example
You find a buyer willing to pay $20/share for your vested shares. You notify the company, which has 30 days to exercise its ROFR. The company declines, so you proceed with the sale. Had the company exercised, you would sell to them instead.