Rights of First Refusal: How to Attract Talent and Level Up Your Contracts

In competitive industries, attracting top-tier talent and aligning investor interests often requires more than just a good salary or equity offer. Savvy business owners are increasingly turning to a lesser-known but powerful legal tool to enhance their contracts: the Right of First Refusal (ROFR).

Whether you’re hiring a key employee, bringing on an advisor, or working with investors, integrating ROFR clauses into your contracts can provide strategic advantages and foster long-term alignment. This article explains what a right of first refusal is, how it works in business relationships, and why it’s a compelling addition to your contract toolkit.

What Is a Right of First Refusal?

A Right of First Refusal (ROFR) is a contractual right that gives one party the first opportunity to buy or otherwise participate in a transaction before the owner can offer it to someone else. ROFRs are commonly used in business purchase agreements, shareholder agreements, operating agreements, employment contracts, and investment deals.

The mechanics are simple: if the asset holder receives an offer from a third party to sell or transfer an interest (such as stock, equity, or even IP rights), they must first present that offer to the holder of the ROFR on the same terms. Only if the ROFR holder declines can the asset be offered to the third party.

How ROFRs Can Help You Attract and Retain Talent

Top performers often want more than compensation—they want a stake in the outcome. A right of first refusal can signal that you’re serious about offering long-term value and transparency.

Equity Incentives with Protections

For early employees, advisors, or partners who receive equity, a ROFR helps them feel more secure by ensuring that shares won’t quietly be transferred to third parties or competitors. It also gives them a potential path to increase their ownership if other members exit.

Valuation Control

By adding ROFRs to founder or owner equity, businesses can control who joins the cap table and at what price, something important to both existing owners and new investors. It can be used to slow dilution and reduce volatility.

Demonstration of Commitment

A ROFR shows prospective hires or collaborators that you’re thinking long-term. It’s a practical way to convey that you’re building a business with structure, and that you see them as an integral piece to the puzzle.

How ROFRs Strengthen Shareholder and Operating Agreements

If you have co-founders, partners, or a multi-member LLC, your operating agreement or shareholder agreement should almost always include a ROFR provision.

Control Who Buys In

Without a ROFR, a partner could sell their interest to an outsider—possibly even a competitor—without your input. A well-drafted ROFR protects everyone by requiring that interests first be offered back to the company or other owners.

Maintain Equity Balance

ROFRs give existing owners a chance to maintain their proportional interest before outsiders are introduced. Courts will generally enforce these provisions as long as the terms are clear and not unconscionable.

Pre-Negotiated Terms Save Time

A clearly defined ROFR streamlines any potential transfer. It avoids ambiguity and prevents disputes about who has what rights if someone wants to cash out.

Using ROFRs in Business Purchase Agreements

When buying or selling a business, a ROFR clause may be used to:

• Let the seller retain partial interest while offering the buyer the first option if they later sell.
• Let minority shareholders or silent partners keep a right to participate in future sales.
• Offer a seller’s family member or key employee the chance to buy back the business if it’s ever sold again.

This is especially common in closely held businesses, family businesses, and franchise models. The flexibility of a ROFR clause can make a deal more attractive to both buyer and seller.

Rights of First Refusal vs. Rights of First Offer

Though similar, a Right of First Offer (ROFO) is slightly different than a ROFR. With a ROFO, the owner must first offer the interest to the holder before seeking offers from anyone else. With a ROFR, the owner gets a third-party offer first and then gives the holder a chance to match it.

Each structure has strategic implications:

• ROFRs are reactive: they allow the holder to match market-tested terms.
• ROFOs are proactive: they give the holder the first chance to negotiate, but without a benchmark offer.

In Ohio and most U.S. jurisdictions, both are enforceable and customizable by contract. The key is clarity of terms; ambiguity can lead to unenforceability.

Tips for Drafting an Effective ROFR Clause

To be enforceable and useful, a ROFR provision should be clearly drafted and include:

• Triggering Events: What kind of sale or transfer triggers the ROFR?
• Notice Requirements: How will the holder be notified, and in what form?
• Timeframe for Response: How long does the holder have to exercise the right?
• Matching Terms: Must the holder match all terms exactly (price, payment terms, etc.)?
• Transfer Mechanics: What happens if the holder declines?

A skilled business attorney can tailor these clauses to your goals, balancing flexibility with enforceability and ensuring compliance with laws and industry best practices.

When to Use a ROFR (and When Not To)

ROFRs are not one-size-fits-all. Consider including one when:

• You want to give team members or partners future ownership opportunities.
• You want to control who can join your ownership group.
• You expect outside interest in the business or anticipate eventual buyouts.

However, be cautious about using ROFRs when:

• You’re raising capital and investors want clean, unrestricted equity.
• You’re creating a succession plan that doesn’t involve the existing team.

The key is alignment: use ROFRs when they support your strategy and relationships, not just because they sound protective.

Ohio Law on ROFRs in Contracts

Under Ohio contract law, ROFR clauses are generally upheld as long as they meet standard requirements of:

• Offer and acceptance
• Mutual consideration
• Clarity of terms
• No violation of public policy

They may also be subject to interpretation under Ohio’s version of the Uniform Commercial Code (UCC) if applied in certain commercial sale contexts. Courts will typically enforce ROFRs strictly according to their terms, making precise drafting essential.

Final Thoughts: Contracts That Attract, Not Just Protect

The best contracts aren’t just shields—they’re magnets. A well-crafted ROFR can make your offer more compelling to investors, partners, and high-level hires. It builds trust, manages expectations, and helps future-proof your ownership structure.

Whether you’re structuring a startup cap table, negotiating an acquisition, or rewarding a key employee, don’t overlook the strategic value of ROFRs.

At Daniel Ross & Associates LLC, we draft tailored operating agreements, shareholder contracts, equity incentive plans, and purchase agreements that protect your business while keeping it attractive to top-tier talent and partners. If you’re considering ROFRs or revising your contracts, we can help you do it right so you’re not just protected, but positioned for growth.

Ready to take the next step? Let’s talk. Schedule a consultation today.