- Right of First Refusal or Right to Match - Your Advantage
- June 11, 2013
- Law Firm: Padly Associates P.A. - Naples Office
Too often when drafting an agreement, people lose track of what can go wrong. The initial thoughts are "we go into business and if it does not work out, then we dissolve it and each go our separate ways." This approach fails to take into consideration the potential other factors that can affect your business relationship. A Right of First Refusal or Right to Match can be an essential element of these types of contracts:
- Bylaws or Operating Agreements for the corporation;
- Employment Agreements; and
- and Commercial Leases.
In Corporate Documents:
Essentially, most people decide to set up a corporation or LLC to protect themselves and limit liability and your initial corporate documents should give you such protection by utilizing termination clauses that incorporate the situation where a creditor is attacking a member, where a member files bankruptcy, etc. It's important to remember that a creditor can be a person who slips and falls on your premise or someone who you had a contract with.
There are additional factors to consider as well. For example, what if your "partner" decides that he no longer wants to do business or stay in the same city to keep the business going. In short - he wants out or in the case where he unfortunately passes. Without a Right of First Refusal clause or a Right to Match clause, you might find yourself doing business with someone else. The Right of First Refusal or Right to Match clause would allow you to purchase his shares for the same price offered. This would keep you from having to do business with a stranger or someone you would not want to. This can also be very beneficial in the case where you are a minority shareholder in the company. Depending on how your bylaws or operating agreement is written, you may find yourself "governed" by the new majority shareholder. If your company has confidential information, do you want the new member to have access to such information? Does your agreement for conditions for a new member? Including such a clause does not obligate you to purchase another member's shares, but gives you the option.
In Employment Agreements:
Most employers would agree that it usually is not easily to find good employees that are well trained and trustworthy. These employees are usually subject to competitors trying to hire them. A Right to Match or Right of First Refusal Clause in the employment Agreement would allow an employer to match the competitive salary offered to the employee by the competitor before seeing that employee leave. While you can also use a Non-Compete Clause, most judges now require an employer to post a bond for the amount of the salary during the duration of the non-compete. Thus, this type of clause can be more advantageous.
For an employee, the advantage is that it can become a method of staying with the same employer and maybe obtaining other benefits they would have with a competitor.
A Right of First Refusal or Right to Match in a commercial lease agreement could give you the option of expanding into a new space before anyone else. Changing locations and addresses can be a hassle for a company, especially a new one. This type of clause is highly recommended for new companies or companies likely to expand with an address that matches its current and future needs. Also note that Landlords usually do not have an objection to such clauses as long as the Tenant is on time with payments and has not breached any terms of the Lease.
Please give us a call if you would like to know more or if we can help you with an agreement. We are here to help! (239)963-6043.
*This article is intended as general information and is not legal advice. It also does not create any Client-Attorney Privilege or relationship. Please call us so we can give you individualized help for your particular situation.