Preemption Rights grant existing shareholders the option to maintain their ownership percentage by purchasing additional shares before new investors can do so. This right is typically exercised through a Preemption Notice, allowing shareholders to avoid dilution of their stake.
Why are Preemption Rights important for shareholders?
Preemption Rights protect shareholders from ownership dilution, ensuring they have the option to maintain their percentage stake in the company.
How are Preemption Rights exercised?
Shareholders receive a Preemption Notice, which gives them the opportunity to purchase additional shares on the same terms offered to new investors.
Are Preemption Rights mandatory in all companies?
Not all companies grant Preemption Rights; these are typically set out in the Articles of Association or negotiated as part of investment agreements.
Can Preemption Rights be waived?
Yes, shareholders can choose to waive their Preemption Rights, allowing the company to offer new shares directly to other investors.
What happens if shareholders don’t exercise their Preemption Rights?
If shareholders decline their Preemption Rights, the company can proceed to offer the new shares to external investors, leading to a potential dilution of existing ownership.
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