Preemptive Right (Noun)
Meaning
The right granting to shareholders the first opportunity to buy a new issue of stock; provides protection against dilution of the shareholder's ownership interest.
Classification
Nouns denoting possession and transfer of possession.
Examples
- A preemptive right is granted to shareholders in many corporations, ensuring they can purchase additional shares to prevent unwanted changes in company ownership.
- One major goal of preemptive rights is to protect shareholders' proportional ownership stakes by giving them first access to newly issued shares.
- Existing shareholders who hold preemptive rights have the opportunity to acquire a proportional amount of any newly issued shares from the company.
- To protect shareholders against ownership dilution, corporations often issue new shares using the preemptive right provision, allowing shareholders to purchase more shares at a set price.
- By allowing shareholders to purchase proportional amounts of newly issued shares, preemptive rights help maintain investors' ownership stakes within a company.