If you’ve ever looked into selling your startup equity on the secondary market, you’ve likely run into a four-letter acronym that can make or break your deal: ROFR (Right of First Refusal).

While it might sound like just another piece of legal jargon in your Stockholder Agreement, the ROFR is the primary mechanism companies use to control their cap table. Here is everything you need to know about how it works and why it matters for your liquidity.

What is ROFR?

In plain English, a Right of First Refusal means the company and its investors are always first in line to buy your shares before you can sell them to anyone else.

The "First Dibs" Rule: If you find an outside buyer willing to pay you $10 per share, you cannot simply close the deal. You are contractually obligated to notify the company first. They then have the right to step in and buy those shares from you at that exact same $10 price.

Why do companies have ROFR?

The short answer is Cap Table Control.

Startups are private for a reason. A ROFR allows leadership to prevent "outsiders", competitors, unfriendly investors, or unknown entities, from appearing on their list of shareholders. By exercising a ROFR, the company keeps ownership “in the family,” often allowing the company itself or existing major investors to increase their stake rather than letting a new party in.

Impact on Employees

From a seller’s perspective, a ROFR isn’t necessarily an issue at face value. If your goal is to liquidate your shares for $100,000, you generally don't care if that wire transfer comes from an outside fund or the company’s own bank account. You get your money either way.

The real issue is "Deal Fatigue."

For a buyer, the ROFR is a major deterrent. Secondary buyers often spend weeks on due diligence and legal fees to price a deal. Knowing that the company can simply "snatch" the deal away at the last second makes many buyers hesitant to even start the process.

This often creates a "chicken and the egg" stalemate:

• The Buyer wants confirmation the company won't exercise its ROFR before they make a formal offer.
• The Company often won't tell you if they'll waive the ROFR until you submit a signed, formal Stock Transfer Agreement.

To navigate this, some brokers or buyers now charge “break-up fees” to ensure they are compensated for their time if the company steps in. Regardless, a ROFR typically delays a deal by 30 days, as you must wait for the company to formally “waive” or “exercise” their right, a process that often requires formal notice and Board approval.

ROFR vs. Transfer Restrictions

It is important to note that a ROFR is different from a total Transfer Restriction.

• A ROFR allows a sale to happen eventually, it just dictates who the buyer is.
• Transfer Restrictions are more rigid; some companies flat-out ban secondary sales entirely unless the Board gives explicit, discretionary permission.

The Bottom Line

Understanding the ROFR is less about who ends up with the shares and more about managing the timeline of your liquidity. If you are looking for a quick exit, the ROFR is the "speed bump" you need to plan for well in advance.