What Is A Right Of First Refusal And Co Sale Agreement

Pre-emption and co-sale (“ROFR/Co-Sale”) prevent a founder or large shareholder from selling shares without the company and investors being allowed to buy the shares or participate in the sale of the shares. Below is a typical layout of the term sheet. When a shareholder wishes to have shares that are co-sold or co-sold, other shareholders who benefit from the right may insist that the potential purchaser agree to acquire an equivalent percentage of his shares at the same price and on the same terms. This can result in difficulties in selling the shares. It is not uncommon for preferred investors to require start-up creators to enter into a co-sale contract. Co-sale rights give investors the right to participate in a transaction when founders sell their shares to third parties. The co-sale rights, also known as Tag Along rights, allow investors to sell their shares under the same terms as the founders. Definition A co-sale agreement (co-sale rights or tag-along provisions) in an appointment sheet gives a group of shareholders the right to sell their shares when another group does so, under the same conditions. In the case of venture capital transactions, these clauses are generally used to ensure that investors can participate, on a pro-rata basis, in all sales of creators or other shareholders that exceed a certain percentage of ownership. The right of pre-emption and the co-purchase contract regulate how and to whom founders and employees can sell their shares. The ROFR/Co-Sale contract rarely receives more than superficial comments in typical business financing. it is important to note that the ro and co-sale rights can be reserved for large investors.

These are contractual clauses between shareholders, which are generally contained in the statutes. When a shareholder wishes to have shares subject to a pre-process right, he must first propose them to the other shareholders who benefit from them. As a general rule, there are certain exceptions to ROFR, such as the right of individuals to transfer shares to close relatives, trusts and investors in order to freely transfer shares to third parties, among themselves or within a group of investors. The requirement to go through a ROFR process can increase the time it takes to sell the shares by several weeks. Typically, the items traded in the rofr/co-sale include: the ROFR/Co-Sale requires a founder, a director and investors to provide written communication to the board of directors and investors about possible transfers, giving the company and investors time to determine whether they are buying the shares (or whether they wish to participate in the “co-sale” of the shares. I have never heard that a right of co-sale is in fact invoked, although I know that many companies remind former founders of their CSR obligations. Co-sale rights are usually coupled with the right to pre-purchase. Co-sale rights assume that ROFR rights have not been exercised and do not come into force until after the ROFR rights have been adopted. In the event that the company proposes the transfer of shares, it is entitled to purchase the shares under the same terms as the proposed sale. If the company does not exercise its prerogative, Preferred holders have a reference right (in proportion to the privileged holders) with respect to the proposed transfer. [The rights to purchase unsubs purchased shares are redistributed in proportion to other legitimate preferred holders.] To the extent that the rights of the first refusal are not exercised, Preferred holders have the right to participate in the proposed transfer on a pro-rata basis (as for the purchaser and the owners of privileged persons). Initial refusal and co-sale rights are subject to the usual exceptions and end with an IPO.

Definition A right of pre-emption (ROFR) in an appointment sheet gives the company and/or the investor the opportunity to acquire shares of founders or other large common shareholders before they are sold to third parties.