Define: Preemptive Right

A preemptive right is a legal right that allows existing shareholders of a company to maintain their proportional ownership in the company by having the first opportunity to purchase additional shares before they are offered to outside investors.

When a company decides to issue new shares, it must first offer those shares to its existing shareholders in proportion to their current ownership. If the existing shareholders choose not to exercise their preemptive right, the shares can then be offered to outside investors.

No, preemptive rights are not automatic. They are typically granted to shareholders through the company’s articles of incorporation or bylaws. If these documents do not specifically grant preemptive rights, shareholders may not have this right.

In some cases, a company may have the ability to exclude certain shareholders from exercising their preemptive rights. This can occur if the company’s articles of incorporation or bylaws contain provisions allowing for such exclusions, such as for certain classes of shareholders or in specific circumstances.

Yes, in many cases, a shareholder can sell or transfer their preemptive right to another party. However, this is subject to any restrictions or limitations set forth in the company’s articles of incorporation or bylaws.

If a shareholder chooses not to exercise their preemptive right, they will not be able to purchase the additional shares being offered. Instead, those shares can be offered to outside investors.

Yes, a company can issue new shares without offering them to existing shareholders if the company’s articles of incorporation or bylaws do not grant preemptive rights to the shareholders.

Yes, a shareholder can choose to waive their preemptive right if they do not wish to purchase additional shares. This can be done through a written agreement or by not taking any action to exercise the right within the specified timeframe.

In general, a company cannot unilaterally revoke preemptive rights that have been granted to shareholders. However, the company may have the ability to amend its articles of incorporation or bylaws to remove or modify preemptive rights for future issuances of shares.

If a company violates a shareholder’s preemptive right, the shareholder may have legal recourse. They may be able to seek remedies such as injunctive relief to prevent the issuance of shares to outside investors or monetary damages for any harm suffered as a result of the violation.