Preemptive Right

Definition - What does Preemptive Right mean?

Preemptive Right is the right of a common stockholder to maintain their proportional ownership interest in a company. A corporation may not issue additional shares of common stock without first offering those shares to existing stockholders.

Testopedia explains Preemptive Right

When an investor purchases shares of common stock they are buying a piece of the company. Most investors only purchase a very small amount of the company on a percentage basis. No matter how small an investor's percentage ownership is all investors have the right to maintain their proportional ownership and to not have their interest diluted. A shareholders preemptive right will be ensured through a rights offering by the company.

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