preemptive right

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Preemptive right

Common stockholders' right to anything of value distributed by thecompany.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Also, due to the remaining shares available for issue, those rights holders validly exercising over subscription privileges will be allocated these on a pro rata basis based on the number of rights underlying their basic subscription privilege.
The completion of the rights offering resulted in the issuance of approximately 9.3 million shares of its common stock, based on the exercise of approximately 20.8 million basic subscription privileges, which is approximately 92% of the rights issued, and the issuance of approximately 0.7 million shares under the over subscription privilege.
The rights offering includes an over-subscription privilege that entitles a stockholder who exercises all basic subscription privileges in full the right to purchase additional shares of common stock which remain unsubscribed at the expiration of the rights offering, subject to availability and pro rata allocation of shares.