Right of First Refusal Clause
(Operating Agreement) (LLC)

Summary

This Right of First Refusal Clause (Operating Agreement) (LLC) can be inserted in a limited liability company's operating agreement to give a member(s) the first-priority option to purchase the membership interest held by a divesting member. This clause contains practical guidance and drafting notes. In the limited liability company (LLC) context, a right of first refusal (ROFR) gives the holder of the right the option to purchase a fellow member's interest after the divesting member has first received an initial bona fide offer from a third party. This third-party aspect distinguishes a ROFR from a right of first offer (ROFO). In a ROFO, the divesting member must first negotiate with fellow members about the planned divestment before negotiating with third parties—meaning that the non-selling members have the right to make the first offer to the selling member. Contrarily, a ROFR gives the holders of the right (i.e., the non-selling members) the right to match any offer first put on the table by any third party. However, if the ROFR holder should fail (i.e., refuse) to do so, then the divesting member will be free to sell to the third party who has presented the best offer. A ROFR must be coordinated with any drag-along rights—generally, a sale of the equity of the majority membership interest holder(s) predicated on a planned change of control of the LLC. Pursuant to a drag-along right, the majority interest holder(s) can force the sale of the membership interests of all other members. A ROFR must also be coordinated with tag-along rights—generally, the right of the minority membership interest holder(s) to include themselves in the sale of the membership interest of the majority (as is typically the case) holder(s) and on identical terms. For a full listing of key content for in-house counsel and corporate secretaries when performing corporate functions, see In-House Corporate Secretary Resource Kit. For more information on limited liability companies generally, see Limited Liability Companies. For related clauses, see Drag-along Rights Clause (Operating Agreement) (LLC) and Tag-Along Rights Clause (Operating Agreement) (LLC).