pre-emption rights

pre-emption rights
Where a company proposes to issue new shares, existing shareholders may have the right to be offered a pro-rata part of the new shares before they are offered to a new shareholder. The rights are contained either in the Articles of Association or imposed by Section 89 Companies Act 1985. These rights may be disapplied either generally or in relation to a particular new issue by a provision in the Articles of Association or a special resolution. In relation to sales of existing shares, similar rights require a shareholder wishing to sell shares to offer them first to existing shareholders before being able to transfer to outsiders. These rights are common for private companies and are found in the Articles of Association.

Easyform Glossary of Law Terms. — UK law terms.


pre-emption rights
Rights for existing shareholders to have first refusal on the issue of new shares by a company. These rights are deemed to be necessary to protect shareholders against dilution of their shareholdings. Unless pre-emption rights are specifically disapplied by way of a Section 95 disapplication, issues of equity securities for cash must be carried out on a pre-emptive basis, with the shares being offered to holders of relevant shares in proportion to their existing holdings (section 89, Companies Act 1985).
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Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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