This is a "Right of First Refusal and Co-Sale Agreement." It is entered into by the corporation and the purchasers of preferred stock. It gives the company and the purchasers of preferred stock certain rights of refusal and options upon the transfer of stock.
Illinois Right of First Refusal and Co-Sale Agreement: A Comprehensive Guide In the state of Illinois, the Right of First Refusal and Co-Sale Agreement is a legal arrangement used in various business transactions, particularly in the context of equity financing or the sale of company shares. This agreement provides a framework for existing shareholders or business partners to safeguard their interests and maintain control over the ownership structure of a company. The Right of First Refusal (ROAR) is a provision that grants a specified shareholder the opportunity to purchase additional shares of a company before those shares are offered to outside parties. Essentially, the ROAR ensures that existing shareholders have the first opportunity to buy any shares being sold by another shareholder. This right is usually exercised at a predetermined price, based on the terms established in the agreement. The Co-Sale Agreement, also known as a tag-along provision, is designed to protect minority shareholders by allowing them to sell their shares on the same terms and conditions as a majority shareholder. In the event that a majority shareholder intends to sell their shares to a third party, the Co-Sale Agreement ensures that minority shareholders have the option to sell their shares alongside those of the majority shareholder, thereby maintaining their proportional ownership in the company. This provision prevents dilution of the minority shareholders' stake and ensures fair treatment in the event of a sale. It is important to note that there can be variations of the Illinois Right of First Refusal and Co-Sale Agreement, tailored to meet the specific needs and circumstances of the parties involved. For instance, some agreements may include a time frame within which the right of first refusal must be exercised. Others might define a minimum number of shares that trigger the ROAR or Co-Sale provision, ensuring that smaller transactions do not create unnecessary burdens for the shareholders. Moreover, shareholders may also negotiate specific terms related to the valuation of shares, payment methods, and any limitations or restrictions on the transferability of shares. These provisions are crucial in maintaining the stability and integrity of a company by ensuring that changes in ownership are carried out in a structured manner. In Illinois, the Right of First Refusal and Co-Sale Agreement is frequently utilized in various industries, such as startups, closely-held corporations, or partnerships where majority shareholders may be seeking additional investments or looking to exit the business. These agreements help protect the interests of both majority and minority shareholders, maintaining the balance of power and preserving the value of their investments. To summarize, the Illinois Right of First Refusal and Co-Sale Agreement is a legal framework that safeguards the interests of shareholders in the context of equity financing or share sales. It provides existing shareholders with the first opportunity to purchase additional shares and allows minority shareholders to sell their shares on the same terms as majority shareholders. With its flexibility to accommodate specific circumstances, this agreement serves as a vital tool in maintaining the stability and control of a company while ensuring fair treatment for all stakeholders.
