Acquiring a company is a very important decision for those wishing to conduct business abroad. It requires taking into account multiple factors, such as local legislation, permits, visas and many others. To help you overcome these challenges, we’ve come up with a short review explaining the difference between drafting two different types of shareholder agreements.
ROFR & ROFO Explained
Shareholders often face a dilemma: should or should they not transfer stakes to 3rd parties? Their main fear is that those 3rd parties may be their company’s competitors or somebody they wouldn’t want to do business with. The mechanisms of two different contracts help them solve these problems in several different ways.
ROFR makes it possible to either accept or reject an offer for purchase of shares after getting an offer from a 3rd party.
ROFO makes it possible to make an offer for the sale of shares prior to getting an offer from a 3rd party.
Which is Better?
ROFR is best suited for stakeholders intending to operate long-term (potential purchasers); in its turn, ROFO will be useful for potential sellers.
Under ROFR, sellers of shares must request an offer from 3rd parties prior to selling shares of a company. In its turn, ROFO doesn't place responsibility on sellers of shares; instead, it sets deadlines for selling shares. Shareholders not participating in the sale may either reject or accept an offer. Should they choose the former option, shares can be sold to 3rd parties at higher prices.
Please note that what’s outlined above represents a set of basic recommendations. By carefully analyzing pros & cons of ROFO & ROFR, you’ll be able to negotiate better terms of an upcoming deal. You can get an even better deal by contacting IQ Decision UK experts who will provide you with professional advice on drawing up a shareholder agreement & many other matters related to purchasing a business abroad.