A right of first refusal stops a shareholder from closing a sale to an outside buyer until the other shareholders have had the chance to buy the shares themselves, on the exact terms the outside buyer already agreed to — so the seller cannot simply accept the best offer on the table without first pausing to let an insider match it.
Our sister firm’s guide to Ontario shareholder agreements states the mechanism directly: “A right of first refusal requires a shareholder holding a genuine third-party offer to offer the shares to the others on the same terms first.” The order matters: unlike a right of first offer, a genuine, signed third-party offer has to exist before the clause is even triggered — the seller is free to negotiate externally first, and only has to pause before accepting.
A companion guide on buy-sell provisions lists the events that typically trigger this kind of clause in a Canadian shareholder agreement: “Voluntary departure, Death, Permanent disability, Termination of employment, Resignation, Bankruptcy or insolvency, Divorce, Deadlock.” A voluntary sale is the classic setting for a right of first refusal; death or disability more often trigger an automatic buyout under a separate, insurance-funded formula rather than a refusal right at all.
The right has teeth against a later buyer because of how the CBCA treats a unanimous shareholder agreement. Where the restriction sits inside one, section 146(3) deems “a purchaser or transferee of shares subject to a unanimous shareholder agreement” to be a party to it, and section 146(4) lets a purchaser who was not given notice of the agreement rescind the purchase within 30 days of learning it exists — which is exactly why a buyer’s counsel checks for a right of first refusal before closing, not after.
A shareholder in a closely held CBCA corporation receives a signed offer from an outside buyer at $2.10 a share. Because the shareholders’ agreement carries a right of first refusal, the seller cannot close with that buyer directly: formal notice of the offer’s exact price and terms must go to the remaining shareholders first. If one of them elects, within the notice period the agreement sets, to match $2.10 a share, the seller must sell to them instead, on identical terms — the outside buyer’s offer never gets accepted, even though it was genuine and came in above the company’s last internal valuation.
See also: Right of first offer · Unanimous shareholder agreement · Private issuer exemption.
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