Why right of first offer matters to a first-time founder
The clause can give an investor, co-owner or tenant early access to a sale while leaving the owner free to reject the first proposal. Poor drafting can delay fundraising or an exit, especially if notice, valuation and negotiation periods are unclear. Its exact effect comes from the contract and governing law.
Examples of right of first offer
A founder wants to sell 20,000 shares. The shareholders’ agreement requires her to notify Investor A, who has 15 days to make an offer. Investor A offers ₹400 per share. She rejects it, waits for the agreed negotiation period to end and then approaches other buyers under the contract’s remaining restrictions.
Common misunderstanding
A right of first offer is not a right of first refusal. The holder usually proposes terms before the owner tests the wider market. Under a refusal right, the holder normally decides whether to match or accept a third party’s offer. Precise wording can alter either mechanism, so the heading is not enough.
When to use it
Use it when a continuing stakeholder deserves an early opportunity but the owner should not have to match an outside offer first. Set the assets covered, notice content, deadlines, confidentiality and what happens after rejection. Obtain legal and tax advice before granting or exercising it, particularly for shares or regulated assets.