4 ms·
My understanding is, right of first refusal includes the option to render the equity worthless if this right is not honored. It's a threat I've seen made before
by robbiemitchell 10y ago
My understanding is, right of first refusal includes the option to render the equity worthless if this right is not honored. It's a threat I've seen made before by a CEO who did not want a secondary market to exist.
- mifreewil 10y agoCan you expand on that? How would one be able to render the equity worthless? My best understanding of a typical "right of first refusal" clause is that it gives the company the right to match any offer by a third-party buyer. This would add some friction to the transaction, in that the company could have some specified period to consider the offer, leaving the pending transaction with a third-party buyer in limbo (or discourage the third-party from even considering the transaction). But if the company refuses to buy back the stock at the terms of the third-party offer or the period of time for the company to consider the offer expires, then you could go ahead with the sale to the third-party.
- scurvy 10y agoThere's almost never a timeliness clause in the right of first refusal (ROFS) section. They can simply choose to ignore your request...indefinitely.
- dwaltrip 10y agoThat seems like a pretty lame loophole. Is that the crux of the method for preventing secondary markets?
- mifreewil 10y agoThat may be standard, I'm not really sure, just remember everything is negotiable.
- gyardley 10y agoEvery right of first refusal clause I've ever been subjected to or subjected others to has had a thirty day deadline, so I don't think this is accurate. It's unlikely that the set of companies I worked for / founded was that unrepresentative. Mind you, when I did do a sale on the secondary market, it always took the full thirty days for the company to approve.