Right of first refusal, abbreviated as ROFR, is the right of a person (investor) or company to purchase something before the offering is made available to others. If an investor / PE fund plans to exit the company, it is obliged to give the promoters or existing shareholders, an opportunity to buy the shares held by the PE before selling the same to a third party.
There are other rights for minority shareholders, such as:
- Tag along right - contractual obligation which protects a minority shareholder in case the majority / promoter is selling out. Minority shareholder can compel stake sale of his stake along with the majority / promoter.
- Drag along right – contractual right with minority shareholder to force the majority shareholder / promoter to join in the sale of the company. If minority shareholder is selling-out, it can compel majority shareholder / promoter to compulsorily offer their stake as well.