A right of first refusal confers on one party to an agreement the primary right to extend or renew a
contract or a term or warranty within that contract. For example, when an existing shareholder
wants to sell his shares, all shares must first be offered to existing shareholders on a pro rata basis,
which enables the existing shareholders to maintain their percentage stake in the Corporation,
before being sold to an outside third party. It also protects existing shareholders from unwelcome
new shareholders. However, if the existing shareholders cannot afford to buy the shares, the shares
may still be sold to the third party and existing shareholders may end up with a new co-owner. One
shortcoming of the right of first refusal is that it may cause delays in the sale of shares.