Pre-emption rights

Pre-emption rights


Pre-emptionrights are for the shareholder. Under this, they receive the right of firstrefusal regarding the issues of a new share of the company. These rights aremade to keep the company’s shareholders protected from being diluted. All therights are generally mentioned in the company’s Articles of Association.

Whereare the pre-emption rights applicable? As per the Companies Act 2006, when theshares are issued, all the shareholders will be entitled to buy a certainnumber of shares of the new shares that are pro-rata to their existingshareholding. Let’s make it simple to understand. If the company followspre-emption rights, the new shares cannot be offered to other investors withoutproviding to the current shareholders first. The pre-emption right can be arisen from:

·        Pre-emption rights undera company’s shareholders agreement.

·        Statutory pre-emptionright.

·        Within the company’s AOA-Article of Association.

Asper the law, a private company may not have pre-emption rights, but for apublic company, it is mandatory.

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