An existing shareholder’s right to be the first to be offered shares that are to be allotted by a company or transferred by another shareholder. Section 561 of the Companies Act 2006 applies pre-emption rights to an allotment of equity securities, subject to exceptions. The Listing Rules (LR) may apply similar pre-emption rights to a company with a premium listing (LR 9.3.11 R, LR 9.3.12 R).
Pre-emption rights apply to a share transfer if the company’s articles of association or shareholders’ agreement so provide. Rights of pre-emption give a shareholder:
• protection against dilution of their percentage shareholding and;
• the ability to prevent unwanted third parties taking shares
If pre-emption rights apply, they must be complied with, unless they can be excluded, disapplied, waived or modified appropriately.
There is institutional investor guidance relating to the disapplication of pre-emption rights which may be followed.