Pre Emptive Rights

Key Highlights

• Pre-emptive rights (also called preemption or pro-rata rights) give existing shareholders the first chance to buy new shares when a company issues them.

• This allows existing shareholders to maintain their current ownership percentage and influence in the company before any shares are offered to external investors.

What is Pre-Emptive Rights?

Pre-emptive rights (also called preemption or pro-rata rights) give existing shareholders the first chance to buy new shares when a company issues them. This allows existing shareholders to maintain their current ownership percentage and influence in the company before any shares are offered to external investors.

Why They Matter?

• Prevents shareholders’ ownership and voting power from being diluted when new shares are added.

• Allows early or key investors to stay involved in the company’s growth.

• Shows confidence in the company when shareholders choose to buy more shares.

How They Work?

• When a company plans to issue new shares, it offers them to current shareholders based on how much they already own (pro-rata).

• If shareholders decline the offer, the company is free to sell those shares to new investors.

Where You Find Them?

• Usually written into a company’s articles of association, shareholder agreements, or corporate charter.

• In some places, these rights are automatic by law; in others, they need to be explicitly included in company documents.