In a venture capital financing, the Right of First Refusal and Co-Sale Agreement is one of the agreements designed to protect the interests of investors. The agreement covers two main rights: the right of first refusal (ROFR) and the co-sale right (often referred to as a tag-along right).
The ROFR gives the startup, and often subsequently the investors, the opportunity to purchase shares that a stockholder (e.g., a founder or key employee) wishes to sell to a third party. The ROFR ensures that the startup and existing investors may prevent unwanted third parties from becoming stockholders. It also gives investors a potential opportunity to increase their ownership stake.
The co-sale right allows investors to sell their shares alongside the sale of shares by other stockholders (often a founder) to a third party. This ensures that if a significant stockholders finds an opportunity to sell shares, the investors can also sell shares.
Note that certain transfers are often excluded from these provisions, such as transfers to trusts or family members, or transfers upon death or disability.
A model Right of First Refusal and Co-Sale Agreement may be found on NVCA's website.