A pre-emption right, right of pre-emption, or first option to buy is a contractual right to acquire certain property newly coming into existence before it can be offered to any other person or entity.[1] It comes from the Latin verb emo, emere, emi, emptum, to buy or purchase, plus the inseparable preposition pre, before. A right to acquire existing property in preference to any other person is usually referred to as a right of first refusal.
Company shares
In practice, the most common form of pre-emption right is the right of existing shareholders to acquire new shares issued by a company in a rights issue, usually a public offering.[2]
Legal framework and share issuance
The legal foundation for pre-emption rights varies by jurisdiction but generally ensures that shareholders can maintain a proportional stake in the company's authorized capital.
When a company (AG, SE, or PLC) issues new ("young") shares, it must define the subscription terms. These terms include the subscription ratio, the subscription price, the dividend entitlement, and the subscription period (which must be at least 14 days in the EU/UK).[7] The subscription price is typically set below the current market price of the "old" shares to mitigate issuance risk and encourage participation.[8]
See also
- Drag-along right
- First-look deal
- Follow-on offering
- Option contract
- Preemption Act of 1841
- Right of first refusal
- Rights issue
- Tag-along right
References
- Bryan A. Garner. Black's Law Dictionary Thomson Reuters, 2009^
- Preemptive Right: What It Is, How It Works, and Benefits Investopedia, retrieved 2025-12-31^
- Section 186 AktG: Subscription Right Federal Ministry of Justice (Germany)^