A Right of First Refusal is an important legal issue in corporate law. No matter the type of business you own or manage, it is a relevant topic and can be used at a strong business strategy. The right of first refusal gives a certain party the opportunity to engage in a transaction before another party can do so. If a right of first refusal is granted but not honored, it can lead to a legal dispute. If you are considering the benefits or downfalls of this concept, contact the best corporate attorney in Los Angeles today.
Definition of a Right of First Refusal
A right of first refusal (“ROFR”) is an agreement (or more typically a provision within an agreement) that requires the party bound by the ROFR to notify the other party before a sale transaction and give the other party the option to participate in and/or preempt the transaction. It not only ensures that the other party is informed upfront, but it also gives the other party a chance to preempt and deal. Therefore, it protects the other party’s interest in whichever way that party sees fit.
A ROFR can cover almost any asset, including real estate, personal property, a patent license, screenplay, or an equity interest in a business. It could also cover business transactions that do not include assets, such as the right to enter into a joint venture or distribution arrangement.
Benefits of a ROFR
Since a right of first refusal gives you the right to enter into a business transaction with a person or company before any other party becomes involved, it can be very beneficial. Clearly, the benefits run in favor of the potential buyer, who is required to be offered the deal. These provisions can be directly customized to the situation, and you are not required to make the purchase when the time comes. Further, the ROFR can ensure that an unknown outsider not enter into a business against your wishes. This is typically the reasoning behind the inclusion of such a provision in the first place.
Exercising a ROFR
If you are contractually guaranteed a right of first refusal, you must be informed at any time of a firm offer to conduct a certain business transaction. This should occur as soon as the transaction is on the table, but depends on the negotiated language of the ROFR provisions. If the ROFR involves a specific asset, you typically can simply match the best offer in order to buy it yourself. In the case of share issuances, you would likely be given the first opportunity to purchase shares at the offer price before the offer opens to other investors.
In order to benefit from a right of first refusal, you need to work with an experienced corporate attorney in Los Angeles such as Afshin Hakim of Hakim Law Group, leading business firm in Los Angeles County, to ensure that the contract is properly drafted. You must also ensure that the provision provides you with liquidated damages, or another appropriate remedy, in the event of a breach. For further information or to schedule an appointment with highly reputable Afshin Hakim, please contact HLG at 310.993.2203 or visit www.HakimLawGroup.com to learn more.