Going into business means learning a lot of new and different terminologies. One of the most challenging things for many business owners is understanding business transaction law. While no business owner is going to be able to understand all of the details, there are some things that you should make a point to understand. For example, the right of first refusal is important. Here's what you need to know about the right of first refusal and your business contracts.
What Is Right Of First Refusal?
In business contract terms, the right of first refusal means exactly what it says. The defined party in the contract has the legal right to be the first one in consideration for a sale or transaction. Legally, the parties must honor this clause in any contract.
When Is Right Of First Refusal Invoked?
The right of first refusal is used in many situations. In many cases, it's included in a partnership contract to require either partner to offer their financial interest in the business to their partner should they ever want to exit the business partnership. In other cases, it's used as a safety net for a party to see how an opportunity is going to go before they invest in it.
Why Consider Including Right Of First Refusal?
For the rights-holder, the right of first refusal is a great option because it ensures that an opportunity or investment isn't lost simply because they weren't ready to make it just yet. It preserves their right to make a purchase or investment if it should be offered.
For the person offering the right of first refusal, it isn't a guarantee that the rights-holder is going to take the opportunity. However, it does provide an opportunity to potentially make the sale without having to locate a buyer or negotiate. However, you may still have to find a buyer or investor should the rights-holder opt not to exercise their right.
What If You Breach The Right Of First Refusal?
If you have signed a contract that requires you to offer the right of first refusal and you don't do so, you're legally in breach of that contract. This is just like any contractual breach; you can be held legally accountable for your actions. In most cases, the rights-holder can take you to court for damages. Any damages awarded are typically equal to the financial loss estimated as a result of the lost transaction.
Talk with a business transaction law attorney today for more information. He or she can help you with the legality of your contracts.
Share17 December 2019
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