Delaware Clauses Relating to Transfers of Venture Interests — Including Rights of First Refusal When establishing a venture or partnership agreement in Delaware, it is crucial to understand the clauses pertaining to the transfer of venture interests, particularly the rights of first refusal. These clauses are designed to regulate the transfer of ownership or interests between venture members and ensure transparency, fairness, and control within the organization. Delaware, being a business-friendly state, provides several types of clauses that can be incorporated into a venture agreement to address these transfers and protect the interests of the venture members. 1. Right of First Refusal (ROAR): The Right of First Refusal is a common clause in Delaware venture agreements. It grants existing venture members the first opportunity to purchase the interest being offered for transfer before it can be sold to an external party. This clause ensures that venture members have the chance to maintain control over the organization by preventing undesired outsiders from becoming stakeholders without their approval. 2. Right of First Offer (ROFL): The Right of First Offer is an alternative to the ROAR clause. It allows venture members to be notified of a prospective transfer and gives them the opportunity to make an offer to purchase the interest on similar terms as those proposed by the external party. Unlike ROAR, the existing venture members are not obligated to purchase the interest, but they have the priority to participate in the transaction. 3. Drag-Along Rights: Drag-Along Rights is a clause that allows a majority of venture members to force minority members to join in the sale of their interests to a third party. This provision ensures that a potential buyer can acquire a substantial stake in the venture without obstruction from minority stakeholders. Drag-Along Rights commonly involve a predefined threshold of venture members' approval. 4. Tag-Along Rights: Tag-Along Rights, also known as Co-Sale Rights, are meant to defend minority venture members. If majority members decide to sell their interests to a third party, Tag-Along Rights enable minority members to "tag along" and sell their interests on the same terms and conditions as the majority members. By utilizing this clause, minority stakeholders are protected from potential dilution resulting from a change in ownership. 5. Customized Transfer Restrictions: Venture agreements in Delaware may also include customized clauses relating to the transfer of venture interests. These clauses can vary based on the specific needs and preferences of the venture members. Customized transfer restrictions can cover limitations on transfers to specific individuals or entities, mandatory consents for transfers, or even restrictions on transfers that compete with the venture's business. In conclusion, Delaware offers various clauses to address the transfer of venture interests, including Rights of First Refusal (ROAR), Right of First Offer (ROFL), Drag-Along Rights, Tag-Along Rights, and customized transfer restrictions. These clauses serve to maintain control, transparency, and fairness within the venture, allowing members to protect their interests and make informed decisions in relation to the transfer of ownership. It is crucial for venture members to carefully consider and incorporate these clauses into their agreements to ensure a well-structured and harmonious business relationship.
Delaware Clauses Relating to Transfers of Venture interests - including Rights of First Refusal
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If someone has first refusal on something that is being sold or offered, they have the right to decide whether or not to buy it or take it before it is offered to anyone else. The agreement gives the two co-chairmen first refusal on each other's shares.
If the tenant decides not to exercise that tenant's option, upon the expiration of the 90-day period, the option shall convert into a right of first refusal, meaning that the property shall not be sold to any other purchaser at any time, at any price or terms without first having been offered on the same terms to the ...
The ROFR is part of the stock purchase agreement that is signed during a venture capital fund raise. It requires any shareholder who wants to sell stock - common stock, preferred stock, etc. - to give the VCs the right to purchase those shares before allowing any other party to buy them.
The clause requires the grantor of the right to offer contract terms to the grantee before it can conclude a contract on the same terms with a third party.
In the context of a corporation, an ROFR is a contractual obligation of a shareholder to offer to sell its shares to the other holders (or sometimes back to the corporation) after receiving a bona fide offer to purchase from a third party.
In a typical right of first refusal, a shareholder wishing to sell his or her shares must first strike a deal with a third party to sell his or her shares. That third party has to commit to the basic terms of a purchase of some or all of the shareholder's shares.
Simply put: A ROFR provides the non-selling shareholders with a right to either accept or refuse an offer from a selling shareholder after the selling shareholder has received a third party offer for its shares.
In real estate, the right of first refusal is a clause in a contract that gives a prioritized, interested party the right to make the first offer on a house before the owner can negotiate with other prospective buyers.