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Preemptive Right

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Preemptive right
Common stockholders' right to anything of value distributed by thecompany.

Preemptive Right
In stock, the ability of a shareholder to maintain the same percentage of ownership in a company should the company issue more stock by subscribing to a proportional number of shares at or below the market price. This protects the investor from devaluation of his/her shares if the company decides to hold a round of financing. The purchase of this proportional number of shares usually takes place before the new issue is offered to the secondary market, and must be exercised before a certain date (known as the expiration date) if the shareholder is to maintain the same percentage of ownership. It is also called a subscription right. See also: Anti-dilution provision.

preemptive right
A stockholder's right to keep a constant percentage of a firm's outstanding stock by being given the first chance to purchase shares in a new stock issue in proportion to the percentage of outstanding shares already held. Not all firms provide the preemptive right, which is more important to stockholders owning a significant part of a company. Also called subscription privilege. Compare privileged subscription. See also special subscription account.


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In the dilution example above, a preemptive right would have given the first investor the right to purchase a proportional amount of the new issuance to preserve their equity ownership.
Nevertheless, the companies said all AmBev shareholders have preemptive rights in the subscription of the capital increase resulting.
Not every issuance of stock triggers the preemptive rights of other shareholders, and state law should be consulted in this regard.
 
 
 
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