Management Glossary

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preemptive right

A right granted to existing shareholders that gives them the right, but not the requirement, to buy a portion of any new common share offering up to the percentage of shares they owned prior to the new share offering being sold. This allows shareholders to ensure that their ownership in the company will not be diluted when new shares are sold.

Companies are under no legal obligation to grant preemptive rights to shareholders unless that right has already been included in the company's articles of incorporation. In some jurisdictions preemptive rights are considered to be binding only if they are included in the company's articles of incorporations.

Contributed by: Managerwise Staff
See: articles of incorporation

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