Also known as: preemption rights · pre-emption right · pre-emption rights · preemptive right · right of preemption · preemptive rights
Written by attorneys · grounded in primary & secondary sources — see below
2 senses
A shareholder privilege to acquire proportional amounts of a corporation's unissued shares upon issuance. The privilege arises only to the extent the articles of incorporation expressly provide for it or contain words of similar effect.
A right granted in a donative transfer of property that gives a designated person the opportunity to purchase the interest at a fixed price or on specified terms if the owner later decides to sell. The right is enforceable only when its price and timing terms are reasonable at the time of the transfer and as applied.
Each sense below has its own examples, sources, and questions.
A shareholder privilege to acquire proportional amounts of a corporation's unissued shares upon issuance. The privilege arises only to the extent the articles of incorporation expressly provide for it or contain words of similar effect.
Select any source to read its text and confirm it supports the definition.
Progressive Healthcare's articles contain no statement electing preemptive rights. The board authorizes new preferred shares sold exclusively to an outside investor for cash. Existing common shareholder Priya Prasad demands a proportional offer. Because the articles do not elect preemptive rights, the corporation may issue the shares without first offering them to Priya.
A close corporation's articles expressly elect preemptive rights. The board issues new common shares for cash to controlling holders only. Minority holder Pierre Poulin demands his proportional allotment. Because the articles contain the required election language, the corporation must first offer shares to Pierre on uniform terms.
Shareholders have no preemptive right to acquire unissued shares unless the articles of incorporation so provide or contain words of similar effect. When the articles elect such rights, shareholders receive a proportional opportunity on uniform terms set by the board.
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A general anti-dilution clause in the articles does not satisfy the statutory requirement of an express election or words of similar effect. Courts therefore hold that such language fails to override the default rule of no preemptive rights.
A right granted in a donative transfer of property that gives a designated person the opportunity to purchase the interest at a fixed price or on specified terms if the owner later decides to sell. The right is enforceable only when its price and timing terms are reasonable at the time of the transfer and as applied.
Select any source to read its text and confirm it supports the definition.
A will grants Pablo Perez a right of first refusal to buy a downtown building at a price fixed by a lease-rate formula. Years later the neighborhood gentrifies and a third party offers triple the formula amount. Pablo attempts to exercise at the original price. The fixed price term, now far below market, renders the right an unreasonable restraint on alienation and unenforceable.
A right of first refusal in a donative transfer is valid only if its price and timing terms are reasonable both at creation and as applied. A fixed formula that later produces a price far below market value, especially when paired with a lengthy exercise period, operates as an unreasonable restraint and is unenforceable.
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No. The validity of a preemptive right created by will turns on reasonableness of price and time rather than automatic application of perpetuities doctrine. Courts examine whether the terms unduly chill market transfers, not merely whether the right might vest remotely.
…in a by-law adopted by and subject to amendment only by the stockholders.” G. L. c. 156B, § 20. We do not here suggest that such preemptive rights are required by the strict fiduciary duty applicable to the stockholders of close corporations. However, to the extent that a controlling stockholder or other stockholder, in violation of…
…transaction” that lasted beyond the statutory perpetuities period. In doing so, we explained that, unlike options , preemptive rights
…one firm can issue rights allowing the purchase of cheap stock, another firm can issue the equivalent series of contingent
…the defendant majority stockholder, who controlled the board of directors, had the bylaws amended to delete a provision granting preemptive rights
…not future interest and not subject to rule); Robroy Land Co. v. Prather , 95 Wash. 2d 66, 71 (1980) (rule not applicable to preemptive rights
Controlling shareholders of a corporation whose articles elect preemptive rights cause the board to issue new voting shares solely to themselves. Minority holder Pavel Petrov is omitted from the offering. Because the articles elect the rights, Pavel may compel the corporation to extend him a proportional opportunity before the issuance closes.
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Even if the articles elect preemptive rights, the statute provides no such right with respect to shares sold otherwise than for cash. A transaction exchanging shares for an endowment and lending commitment therefore falls outside any preemptive regime.
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