Pre-emption rights—private companies with one class of shares
Pre-emption rights—private companies with one class of shares

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

  • Pre-emption rights—private companies with one class of shares
  • The right of pre-emption
  • Making the pre-emptive offer
  • Exceptions to pre-emption rights
  • Exclusion of pre-emption rights by private company
  • Other circumstances in which the CA 2006 pre-emption rights may not apply
  • Disapplication or modification of pre-emption rights
  • Documents to be filed with Companies House
  • Penalties

The Companies Act 2006 (CA 2006) gives existing shareholders of companies a right of pre-emption by providing that a company must not allot equity securities unless it has first made an offer to each existing ordinary shareholder to allot those securities to them, unless the circumstances fall within an exception to the right of pre-emption or such rights have been excluded or disapplied. Pre-emption rights give a company's existing shareholders important protection against dilution of their percentage holding of a company's issued share capital.

For further information about general issues relating to pre-emption and for the considerations relating to other types of company, see Practice Notes: Pre-emption rights—general issues, Pre-emption rights—private companies with more than one class of shares and public unlisted companies and Pre-emption rights—listed companies.

The right of pre-emption

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 on the same or more favourable terms a proportion of those securities that is as nearly as practicable equal to the proportion in nominal value currently held by him of the ordinary share capital of the company, and

  2. the period during which the offer may be accepted has expired or the company has received either an acceptance or refusal of every offer