Pre-emption Rights in Limited Companies
Pre-emption rights are the privileges bestowed on a limited company's existing shareholders to be offered any additional shares which the are being issued first, before any outside party is permitted to subscribe for them.
The statutory provision also extend to situations where an existing shareholder wishes to sell some or all of their holding. Pre-emption rights would ensure that the availability of those shares are notified to the current members and that they would have first chance to refuse the offer.
Should the existing shareholders not wish to take up the offer, only then would the company be allowed to sell the shares to a third party.
Purpose of Pre-emption Rights
The purpose of pre-emption rights is to protect the percentage holding of existing members. They prevent the company from issuing additional shares to outsiders as a means to dilute the control which the current shareholders might presently have.