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Simple English definitions for legal terms
Preemptive right
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A quick definition of Preemptive right:
A preemptive right is a special right that existing shareholders in a company have. It means they get to buy new shares of the company before anyone else can. This is to make sure that the current shareholders don't lose value or control of the company. The company's rules, called the charter, usually say how many new shares each shareholder can buy. This used to be a rule that all companies had to follow, but now it's only required if the charter says so.
A more thorough explanation:
A preemptive right is a right given to existing shareholders in a company that allows them to buy newly issued shares before they are offered to anyone else. This right is meant to protect current shareholders from losing value or control of the company. Preemptive rights are usually stated in the company's charter.
For example, if a company decides to issue 100 new shares, and a shareholder owns 10% of the company, they would have the right to buy 10 of the new shares before anyone else can buy them. This ensures that the shareholder's ownership percentage remains the same, and they are not diluted by the new shares.
It's important to note that not all companies offer preemptive rights, and it's up to the company's charter to decide whether or not to include them.