Right of First Refusal
What It Means
Right of First Refusal refers to a contractual right to enter into a transaction with another party before that party is able to enter into the same transaction with a third party. For example, if a company receives a bona fide offer to be acquired from a third party, and another party has a contractual Right of First Refusal relating to such a transaction, the company would be obligated to enter into the transaction under the same terms with the contractual party, should that contractual party wish.
Why It’s Important
Right of First Refusal clauses are common in Acquisitions and other private investments. One of the most important elements of these contractual clauses is that they are optional. The holder is not obligated to enter into the agreement under the proposed terms. They are free to evaluate the terms and only enter into the agreement if it benefits them.