Preemptive Right

AAA

DEFINITION of 'Preemptive Right'

A privilege extended to select shareholders of a corporation that will give them the right to purchase additional shares in the company before the general public has the opportunity in the event there is a seasoned offering. A preemptive right is written in the contract between the purchaser and the company, but does not function like a put option.

Also known as "preemption rights".

INVESTOPEDIA EXPLAINS 'Preemptive Right'

When shareholders, usually a majority shareholder or a shareholder committing large amounts of capital to a startup company, purchase shares, they want to ensure they have as much voting power in the future as they did when they initially invested in the company. By getting preemptive rights in its shareholder's agreement, the shareholder can ensure that any seasoned offerings will not dilute his/her ownership percentage.

RELATED TERMS
  1. Put Option

    An option contract giving the owner the right, but not the obligation, ...
  2. Seasoned Issue

    An issue of additional securities from an established company ...
  3. Stock

    A type of security that signifies ownership in a corporation ...
  4. No-Par Value Stock

    Stock that is issued without the specification of a par value ...
  5. Common Stock

    A security that represents ownership in a corporation. Holders ...
  6. Separation Of Powers

    An organizational structure in which responsibilities, authorities, ...
Related Articles
  1. Investing Basics

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  2. Investing Basics

    Knowing Your Rights As A Shareholder

    We delve into common stock owners' privileges and how to be vigilant in monitoring a company.
  3. Investing Basics

    Explaining Pro-Rata

    Pro-rata is a term meaning a fraction of a whole based on a relationship to the whole. Proportionate allocations are made pro-rata.
  4. Investing

    What are Preference Shares?

    Preference shares, also referred to as preferred shares, are equity shares that give the shareholders certain rights ahead of common shareholders. For instance, when the corporation declares ...
  5. Stock Analysis

    Intel Doesn't Need New Management

    Intel's purported manufacturing technology prowess has been completely squandered in the mobile arena, and the stock has been a disappointment.
  6. Stock Analysis

    Will Spinoffs Give American Capital A Pop?

    American Capital shareholders have long awaited a plan to spin off the company's investments from its prized asset-management business.
  7. Stock Analysis

    Will American Airlines Fall Back To Earth In 2015?

    The airline industry enjoys blockbuster profits, and American Airlines Group has been a key beneficiary of the favorable trends that have lifted stocks.
  8. Stock Analysis

    Qualcomm's New Buyback Program Is Well-Timed

    Qualcomm announced after market close on Monday that they had approved a new stock buyback program, authorizing to repurchase $15 billion in shares.
  9. Stock Analysis

    Should You Leave Galena To The Day Traders?

    There are few sectors as exciting as the biotech sector, and shareholders of Galena Biopharma have certainly been privy to a ride over the past two years.
  10. Stock Analysis

    Can American Capital Agency Maintain Its Dividend?

    Dividend investors know that real estate investment trusts with REITs that invest in mortgage-backed securities produce double-digit dividend yields.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center