Which statement about transfer restrictions and rights of first refusal in FBI Farms is correct?

• A. A holder may delay exercising the right until after the sale is completed.
• B. Transfer restrictions may be conditioned on board approval and only blood relatives if reasonable.
• C. Reasonable transfer restrictions block a creditor from exercising a lien.
• D. Once shares transfer to a creditor, restrictions no longer apply.

Answer: (B)

The statement reflects how transfer restrictions and rights of first refusal are treated in closely held enterprises. Transfer restrictions can be tailored to protect control and continuity, so permitting the board to approve transfers gives governance oversight and helps prevent unwanted ownership changes. Allowing restrictions to apply only to blood relatives, if those limits are reasonable, aligns with family- or founder-driven businesses where succession and fit matter. As long as the restriction is reasonable in scope and duration, it can legitimately specify who may or may not become a shareholder, including restricting transfers to certain family members.

Delaying the exercise of a right of first refusal until after the sale closes would undermine the purpose of the ROFR, which is to give existing holders the option to purchase before a transfer completes. Valuing a creditor’s lien as a transfer restriction is not the function of a ROFR or restricted-share provision, and stating that restrictions vanish once shares go to a creditor misreads how these limitations operate—restrictions are about who may own the shares, and they typically remain applicable to future transfers regardless of current ownership.