Right Of First Refusal

AAA

DEFINITION of 'Right Of First Refusal'

A contractual right of an entity to be given the opportunity to enter into a business transaction with a person or company before anyone else can. Since an entity with the right of first refusal has the right, but not the obligation, to enter into a transaction that generally involves an asset, it is akin to a having a call option on the asset. If the entity with the right of first refusal declines to enter into a transaction, the owner of the asset is free to open the bidding up to other interested parties.



INVESTOPEDIA EXPLAINS 'Right Of First Refusal'

A right of first refusal is usually negotiated by a party when it wants to see how a business will turn out. The party may therefore prefer to hold the option to get involved at a later point, rather than make the outlay and commitment upfront.




In the business world, rights of first refusal are commonly seen in joint venture situations. The partners in a joint venture generally possess the right of first refusal on buying out the stakes held by other partners, should the latter wish to leave the joint venture.




Rights of first refusal are a common feature in many other areas, from real estate to sports and entertainment. For example, a publishing house may ask for the right of first refusal on future books by a relatively new author.

RELATED TERMS
  1. Godfather Offer

    An irrefutable takeover offer made to a target company by an ...
  2. Offer In Compromise

    A program offered by the IRS to taxpayers who are unable to pay ...
  3. Tender Offer

    An offer to purchase some or all of shareholders' shares in a ...
  4. Rights

    A security giving stockholders entitlement to purchase new shares ...
  5. Open Offer

    A secondary market offering that is similar to a rights issue ...
  6. Catastrophe Equity Put (CatEPut)

    Catastrophe equity puts are used to ensure that insurance companies ...
Related Articles
  1. Home & Auto

    How You Make Money In Real Estate

    If you're interested in the real estate game, make sure you know what factors will affect whether you make money or not.
  2. Fundamental Analysis

    Spotting Creative Accounting On The Balance Sheet

    Companies have ways of manipulating their balance sheets that investors should be aware of.
  3. Professionals

    Acquire A Career In Mergers

    This exciting sector demands a lot from its advisors. Are you up for it?
  4. Options & Futures

    Options and Roth IRAs: Do's and Don'ts

    A breakdown of the do's and don'ts of trading options in a Roth IRA.
  5. Options & Futures

    5 Secrets You Didn't Know About Roth IRAs

    Between its generous tax benefits at retirement and no required minimum distributions, a Roth IRA is well worth considering if you're eligible to have one.
  6. Forex Strategies

    The 10 Riskiest Investments

    Investors seeking high returns must also be prepared for high risk. Here are ten of the riskiest investments available.
  7. Options & Futures

    Trade Covered Calls On High Dividend Paying Stocks

    We explain the risks, rewards, timing, and profit and loss considerations for covered calls with dividend stocks.
  8. Options & Futures

    Was Buffet Right about Derivatives as WMDs?

    Why Warren Buffet described derivatives as weapons of mass destruction, and when can they be helpful or harmful?
  9. Economics

    What is Earnest Money?

    An earnest money deposit shows the seller that a buyer is serious about purchasing a property.
  10. Options & Futures

    Top Brokers Offering Tools For Covered Calls

    Here are the brokers that offer the best tools for investors and traders to write covered calls and covered puts.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center