Pre-emption rights | Glossary | Set Up a Company

Pre-emption rights

Pre-emption rights are the rights of shareholders to be offered any new issue of shares before the proposed new shares are offered to non-shareholders. The rights are normally contained in the Articles of Association.

The offer of shares to shareholders is usually required to be pro-rata to their existing shareholding. The purpose of pre-emption rights is to ensure that shareholders have an opportunity to prevent their stake in the Company being diluted by any new issue of shares.

It is possible for shareholders to waive pre-emption rights. This is useful for situations where a rights issue would not be cost effective. There is a distinction between private companies and public companies in relation to pre-emption rights in that private companies can exclude pre-emption rights but public companies cannot.

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