Shareholder Pre-Emption Notice Drafting and Enforcement Standards
Defective pre-emption notices invalidate share transfers and expose sellers to mandatory injunctions, register rectification, and buyer damages.
Bona Fide Third Party Offer
Meaning
A binding proposal from an independent external buyer to purchase shares or assets establishes a market-validated valuation for a target company. In venture finance and shareholder agreements, a bona fide third party offer must be genuine, written, and capable of being converted into a binding contract upon acceptance. It forms the benchmark against which existing shareholders must decide whether to exercise their right of first refusal.
This proposal cannot be a mere expression of interest or an informal letter of intent.
Commercial Reality
The mechanism prevents existing shareholders from being locked into artificially inflated or manufactured valuations. In a bona fide third party offer, the prospective purchaser must have the financial capacity to complete the transaction and must operate at arm’s length from the selling shareholder. This prevents collusion between a majority holder and a friendly associate designed to force minority holders out or extract unfavorable terms.
Speculative proposals or those subject to highly uncertain funding conditions fail to meet the standard.
Contractual Trigger
Receipt of a valid proposal initiates a specific window for other equity holders. Upon receiving a bona fide third party offer, the company must distribute the terms to all parties protected by pre-emption rights. These holders then face a strict timeline to match the price and terms.
If they decline, the seller is free to proceed with the external transaction.
Verification Method
Independent review of the proposal’s terms confirms its legitimacy. The company board typically requests proof of funds or a financing commitment from the buyer before qualifying the proposal as a bona fide third party offer. This step protects the integrity of the capital structure and ensures that the rights of first refusal are only triggered by genuine commercial opportunities.