Legal Updates

Exercise of right of first refusal does not require a final and binding agreement with a third party and a purchase offer is sufficient

January 29, 2017
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A shareholder wished to sell his shares and notified the other shareholder so that he can exercise the right of first refusal mechanism set between then. The other shareholder argued that the share sale transaction is invalid because the right of first refusal mechanism was not duly exercise as a final agreement was not sent.

The Court held that the meaning of the right of refusal is to give the other shareholders in the company a way to prevent a contract with a third party. Therefore, it is not required that upon sending a message concerning the exercise of the right of first refusal one will have a binding contract with the third party, but the offer to acquire the shares should be as specific as can be. The offer should include the key terms of the transaction. If the option was not exercised by the existing shareholders the selling shareholder may sell his shares to a third party at a price not less than the price stated in the offer and under the same conditions.  A minor change in the conditions that would not have change the minds of the existing shareholders to reject the transaction with the third party will not be a reason to reject the transaction. Therefore, in this case the right of first refusal mechanism was duly exercised and the transaction is valid.

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