Pre-emption Rights

Pre-emption Rights definition

/priːˈɛmpʃn/ /rʌɪts/

What does Pre-emption Rights mean?

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 explained

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.

Variances

Pre-emption Right

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