Also known as: subscription rights · preemptive right · pre-emptive right
Written by attorneys · grounded in primary & secondary sources — see below
An instrument or certificate that evidences a shareholder's preemptive right to purchase a proportional amount of a corporation's newly issued shares on uniform terms before the shares are offered to the public. The right arises only to the extent the articles of incorporation expressly provide for it and may be waived in writing.
Silverline Industries' articles state that shareholders have no preemptive rights to unissued shares. The board issues new common shares solely to an outside investor. Simon Stern, a minority shareholder, demands the chance to buy a proportional block under a subscription right. The corporation refuses because the articles contain no election of preemptive rights.
Stella Shapiro receives subscription rights in a corporate reorganization that allow her to buy new shares at a fixed price for twenty-five years. When she attempts to exercise the rights decades later, the corporation challenges enforceability on the ground that the long duration creates an unreasonable restraint.
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Summit Bank shareholders receive subscription rights certificates in connection with a tender offer. Seth Shapiro, holding rights for 5,000 shares, seeks to exercise them after learning of an undisclosed control premium paid to insiders. He claims the rights were not granted on uniform terms.
Sebastian Santos holds subscription rights created by a special legislative act authorizing a new stock issuance. When the corporation attempts to sell the shares to a third party without first offering them to Santos, he sues to enforce the rights as a contractual obligation protected against impairment.
Sterling Manufacturing, a close corporation, issues new shares to one shareholder without offering Sabrina Shah a proportional subscription right. Shah claims the issuance violates the equal-opportunity rule that protects minority owners from dilution in closely held firms.
Shareholders receive subscription rights only when the articles of incorporation expressly elect preemptive rights. The default rule under the Model Business Corporation Act is that no such rights exist unless the articles so provide.
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Yes. A shareholder may waive subscription rights in a writing that remains irrevocable even without consideration.
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Shares acquired by exercising subscription rights with new funds are treated as after-acquired property and do not pass under a specific devise of the original holding. Only automatic corporate actions such as splits and stock dividends follow the original shares.
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A right of first refusal or similar preemptive provision in a will or trust is enforceable if its price and exercise period are reasonable at the time of the transfer. An outdated fixed-price formula that falls far below current market value renders the right an invalid restraint on alienation.
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…v. Plywood Corp. , 324 Mass. 171, 176-177 (1949). [^maj-24]: Under the Massachusetts law, “[n]o stockholder shall have any pre-emptive right to acquire stock of the corporation except to the extent provided in the articles of organization or in a by-law adopted by and subject to amendment only by the stockholders.” G. L. c.…