Pre-emption rights—penalties
Pre-emption rights—penalties

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Pre-emption rights—penalties
  • Existing shareholders’ right of pre-emption
  • Exclusion of right of pre-emption
  • Disapplication of pre-emption rights

A pre-emption right is a right of first refusal to purchase shares, given to an existing holder of ordinary shares on an allotment of equity securities by a company.

The provisions relating to pre-emption rights and their disapplication are contained in the Companies Act 2006 (CA 2006).

For further information in relation to pre-emption rights and their disapplication, see Practice Notes: Pre-emption rights—general issues, Pre-emption rights—private companies with one class of shares, Pre-emption rights—private companies with more than one class of shares and public unlisted companies and Pre-emption rights—listed companies.

This Practice Note covers the main penalties for breach of the pre-emption provisions in the CA 2006. It does not consider any other legislation or guidelines (as applicable).

For information in relation to penalties for breach of the allotment provisions in the CA 2006, see Practice Note: Allotment and issue of shares—penalties.

Existing shareholders’ right of pre-emption

The basic statutory principle

With some exceptions, a company must not allot equity securities to a person on any terms unless:

  1. it has made an offer to each ordinary shareholder to allot to him a proportion of the shares to be allotted (on the same or more favourable terms than is being offered to third parties) which is nearly as practicable equal to the proportion in nominal value currently held by him of the ordinary share