Preemptive Rights*

2015 07 01 | Category: Offshore Glossary

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Preemptive Rights*
Rights delineated in the articles of incorporation granting shareholders the first opportunity to buy any additional shares issued by a corporation in proportion to their current equity. The shareholder has the right to buy the new issue of stock, but is not required to make the purchase. If the shareholder elects not to exercise this right, the shares can be sold on the open market. The purpose of these rights is to protect shareholders from dilution of value and control when new shares are issued. These rights may be limited or denied. Most states consider preemptive rights valid only if made explicit in a corporation’s charter. Also called subscription privilege or subscription right.


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