A right of first refusal (ROFR), or pre-emption right, is a contractual provision in a shareholders' agreement requiring a selling shareholder to offer their shares to existing shareholders (or designated beneficiaries) on the same terms before selling to a third party. It protects existing shareholders against the entry of an undesired new shareholder and is one of the most standard transfer restriction mechanisms in Franco-Swiss SME shareholders' agreements.

In French law, rights of first refusal in shareholders' agreements are enforceable and may result in nullification of the third-party sale if the right was violated with third-party knowledge. In Swiss law (CO art. 216 for real property, general contract law for shares), enforcement mechanisms differ and forced acquisition may be more difficult to obtain.

In M&A due diligence, verifying the existence and exercisability of rights of first refusal is a standard step — their violation can result in transaction nullification. Existing shareholders must be notified of any proposed sale and given the required exercise period (typically 15 to 30 days) before the transaction can proceed.

Example: a shareholders' agreement between three co-founders includes a cross right of first refusal. Co-founder A receives a VC offer of CHF 3.0 million for their 30% stake. They must notify B and C who have 15 days to match the terms. B exercises their right for 50% of the offered stake (CHF 1.5M). The VC acquires the remaining 50% (CHF 1.5M).

At Hectelion, we analyse rights of first refusal and pre-emption rights in our Franco-Swiss due diligences and advise on their drafting in shareholders' agreements.