ROFR and ROFO

For those who intend to acquire a company for conducting business abroad, there are many factors to consider like permits, local legislation, visas. This short report specifically will help you understand the difference between the two shareholder agreement types.

Explanation ROFR vs ROFO

The question that shareholders always ask themselves is “Should we transfer stakes to 3rd parties or not?”. Mainly, shareholders are afraid that a 3rd party can be someone they do not want to do business with; for example, their competitors on the market. This issue can be solved by using the mechanism of two different contracts.

ROFR (Right of First Refusal) allows the company shareholders to react to the offer from a 3rd party by rejecting or accepting it.

ROFO (Right of First Offer) enables the shareholders to be the first ones who make an offer for sale.

What to choose?

Starting with ROFR, this solution is better for stakeholders who plan to operate in the long-term perspective. Under this agreement, sellers of shares are obliged to request an offer of 3rd parties before they could sell the shares.

When it comes to ROFO, this agreement type would be better suited for potential sellers. It requires the fulfillment of deadlines for selling shares instead of placing responsibility on sellers of shares. An offer can be accepted or rejected by shareholders who are not participating in the sale. In case the offer is rejected, 3rd parties can buy the shares but for a higher price.

Conclusion

This article’s goal was to roughly outline the principles of two agreement types. Once you get familiar with the advantages and disadvantages of both ROFR and ROFO, your negotiating skills will surely result in a profitable deal.

You can contact COREDO now to receive a professional consultation and assistance with a shareholder agreement preparation if you are planning to acquire a foreign company.