Preemptive Rights in United States
Practical Information
Note: Some of this information was last updated in 1982
In corporation law, the shareholder’s right to subscribe pro rata to additional new shares of stock before such new shares are offered to outsiders. A preemptive right, if exercised, will guarantee a shareholder’s proportionate interest in the corporation (in U.S. law) Such rights provide a safeguard that operates in favor of the original investor, protecting the investor against the dilution of voting power and his or her equities in the surplus and earnings of the corporation. A stockholder should determine whether he or she has preemptive rights by examining the certificate (in U.S. law) of Incorporation. If the stockholder has the rights and they are violated, he or she may bring action against the board of directors (in U.S. law) and may also bring action to cancel the issue if shares are held by persons who took them with knowledge that preemptive rights were being violated.
What is Preemptive Rights?
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