Nevada Right of First Refusal Clause for Shareholders' Agreement
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FAQ
Drag-along rights are normally triggered in the event of mergers and acquisitions and are designed to protect majority shareholders. Alternatively, a partnership agreement can give the shareholders tag-along rights.
A Right of First Offer (ROFO) and a Right of First Refusal (ROFR) are both contractual obligations that often arise in the context of a lease arrangement or in connection with selling an asset (such as a piece of property).
A right of first refusal is a contractual right giving its holder the option to transact with the other contracting party before others can. The ROFR assures the holder that they will not lose their rights to an asset if others express interest.
Tag-along or co-sale rights are essentially the opposite of drag-along rights. Whereas tag-along rights give minority shareholders negotiating rights in the event of a sale, drag-along rights force the minority shareholders to accept whatever deal is negotiated by majority shareholders.
When some of the shareholders wish to sell their share, a clause in the shareholder's agreement should state that the shareholders who wish to sell their shares have to show the right to match an offer received from a third party. This is known as the right of first refusal.
A Standard Clause in many shareholder agreements including unanimous shareholder agreements (USAs), a drag-along provision gives majority shareholders wishing to sell all or a substantial portion of their shares in the corporation to an unrelated third party the right to force the remaining shareholders to also sell
Right of First Refusal : Existing shareholders get first crack at the chance to match a bona fide offer that a shareholder receives from a third party to purchase his or her shares thus, potentially, preventing a third-party purchaser from becoming a shareholder if it is deemed not in the best interests of the company.
Rights of first refusals (ROFR), rights of first offer (ROFO) and options are all contractual rights that are often included in agreements to set forth the terms in which the parties will handle these possible future transactions.
Drag-along rights and tag-along rights are important forms of investment realisation in a shareholders agreement. Drag-along rights favour the majority shareholder while tag-along rights are more beneficial to the minority shareholder.
A ROFR is considered to favour those shareholders who intend to stay long-term (likely buyers); while a ROFO is seen to favour likely sellers. In a ROFR mechanism, the selling shareholder has to solicit an offer from a third party before offering its shares to the non-selling shareholders.
