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.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 .
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, a usually but not always public offering. In this context, the pre-emptive right is also called subscription right or subscription privilege.This is the right, but not the obligation, of existing shareholders to buy the new shares before they are offered to the public. In this way, existing shareholders can maintain their proportional ownership of the company, preventing stock dilution. In many jurisdictions, subscription rights are automatically provided for by statute, for example the United Kingdom, but in other jurisdictions it only arises if provided for under the constitutional documents of the relevant company, for example the United States. In the United States, it is rare for publicly listed companies to grant pre-emptive rights to shareholders, but it is common for unlisted companies to grant pre-emptive rights to venture capital and private equity investors. The European Union has brought an infringement action against Spain based on the claim that the lack of statutory pre-emptive rights under Spanish law violates the Second Company Law Directive.
Other situations in which pre-emption rights are seen to arise are in property developments; parties close to the investors are often given a right of pre-emption in relation to new flats or condominiums within a development.
Overall, pre-emption right is similar to the concept of a call option.
The Companies Act 2006 is the source of shareholder pre-emption rights in British companies. Under section 561(1) of the Companies Act 2006 a company must not issue shares to any person unless:
By virtue of section 562(5), the period given to the shareholders to accept such an offer must not be less than 14 days.
The effect of these provisions is that a company cannot allot shares to new shareholders until it has offered them to their existing shareholders. The company must give the shareholders at least 14 days to decide whether or not they wish to purchase the shares. Private companies and in some cases public companies can choose to disapply or modify the satutory pre-emption rights either generally or in respect of a specific allotment (sections 569 to 573 of the Companies Act 2006)
In earlier time, "pre-emption right" has had a separate and distinct meaning to that given to it today.
Under international law, the right of preemption formerly referred to the right of a nation to detain merchandise passing through its territories or seas, in order to afford to its subjects the preference of purchase. This form of right was sometimes regulated by treaty. A treaty between the United States and Great Britain in 1794 agreed that:
whereas the difficulty of agreeing on precise cases in which alone provisions and other articles not generally contraband may be regarded as such, renders it expedient to provide against the inconveniences and misunderstandings which might thence arise. It is further agreed that whenever any such articles so being contraband according to the existing laws of nations, shall for that reason be seized, the same shall not be confiscated, but the owners thereof shall be speedily and completely indemnified; and the captors, or in their default-the government under whose authority they act, shall pay to the masters or owners of such vessel the full value of all articles, with a reasonable mercantile profit thereon, together with the freight, and also the damages incident to such detention.
In the United States in the eighteenth century, when an individual bought the preemption right to land, he did not buy the land. He was only buying the right to buy the land.In the case of the Phelps and Gorham Purchase, the syndicate paid Massachusetts USD$1,000,000 for the pre-emptive rights, and then paid the Indians, who thought they owned the land, $5,000 cash and an annual $500 annuity forever for their title to the land.
In finance, equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of an asset. For example, if someone owns a car worth $15,000 and owes $5,000 on the loan used to buy the car, then the difference of $10,000 is equity. Equity can apply to a single asset, such as a car or house, or to an entire business entity. Selling equity in a business is an essential method for acquiring cash needed to start up and expand operations.
A shareholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders may be referred to as members of a corporation. By law, a person is not a shareholder in a corporation until their name and other details are entered in the corporation's register of shareholders or members.
The Phelps and Gorham Purchase was the purchase in 1788 of 6,000,000 acres (24,000 km2) of land in what is now western New York State from the Commonwealth of Massachusetts for $1,000,000 (£300,000), to be paid in three annual installments, and the pre-emptive right to the title on the land from the Six Nations of the Iroquois Confederacy for $5000 (£12,500). A syndicate formed by Oliver Phelps and Nathaniel Gorham bought preemptive rights to 6,000,000-acre (24,000 km2) in New York, west of Seneca Lake between Lake Ontario and the Pennsylvania border, from the Commonwealth of Massachusetts.
Preemption or pre-emption may refer to:
Right of first refusal is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party. A first refusal right must have at least three parties: the owner, the third party or buyer, and the option holder. In general, the owner must make the same offer to the option holder before making the offer to the buyer. The right of first refusal is similar in concept to a call option.
Corporate law is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. The term refers to the legal practice of law relating to corporations, or to the theory of corporations. Corporate law often describes the law relating to matters which derive directly from the life-cycle of a corporation. It thus encompasses the formation, funding, governance, and death of a corporation.
A rights issue or rights offer is a dividend of subscription rights to buy additional securities in a company made to the company's existing security holders. When the rights are for equity securities, such as shares, in a public company, it is a non-dilutive(can be dilutive) pro rata way to raise capital. Rights issues are typically sold via a prospectus or prospectus supplement. With the issued rights, existing security-holders have the privilege to buy a specified number of new securities from the issuer at a specified price within a subscription period. In a public company, a rights issue is a form of public offering. Sometimes Right issue can give privileges to people like director, employees those are having some ownership in company to buy the issues.
The Preemption Act of 1841, also known as the Distributive Preemption Act, was a United States federal law approved on September 4, 1841. It was designed to "appropriate the proceeds of the sales of public lands... and to grant 'pre-emption rights' to individuals" who were living on federal lands.
Stock dilution, also known as equity dilution, is the decrease in existing shareholders’ ownership percentage of a company as a result of the company issuing new equity. New equity increases the total shares outstanding which has a dilutive effect on the ownership percentage of existing shareholders. This increase in the number of shares outstanding can result from a primary market offering, employees exercising stock options, or by issuance or conversion of convertible bonds, preferred shares or warrants into stock. This dilution can shift fundamental positions of the stock such as ownership percentage, voting control, earnings per share, and the value of individual shares.
The Preemption Line divided the aboriginal lands of western New York State awarded to New York from those awarded to Commonwealth of Massachusetts by the Treaty of Hartford of 1786. It was defined as the meridian (north–south) line from the eighty-second milestone of the Pennsylvania–New York survey line at 76° 57' 58" W northward to Lake Ontario.
A squeeze-out or squeezeout, sometimes synonymous with freeze-out (freezeout), is the compulsory sale of the shares of minority shareholders of a joint-stock company for which they receive a fair cash compensation.
A shareholders' agreement (SHA) is an agreement amongst the shareholders or members of a company. In practical effect, it is analogous to a partnership agreement. It can be said that some jurisdictions fail to give a proper definition to the concept of shareholders' agreement, however particular consequences of this agreements are defined so far. There are advantages of the shareholder's agreement; to be specific, it helps the corporate entity to maintain the absence of publicity and keep the confidentiality. Nonetheless, there are also some disadvantages that should be considered, such as the limited effect to the third parties and alternation of the stipulated articles can be time consuming.
Share repurchase is the re-acquisition by a company of its own stock. It represents a more flexible way of returning money to shareholders.
The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal vehicle to organise and run business. Tracing their modern history to the late Industrial Revolution, public companies now employ more people and generate more of wealth in the United Kingdom economy than any other form of organisation. The United Kingdom was the first country to draft modern corporation statutes, where through a simple registration procedure any investors could incorporate, limit liability to their commercial creditors in the event of business insolvency, and where management was delegated to a centralised board of directors. An influential model within Europe, the Commonwealth and as an international standard setter, UK law has always given people broad freedom to design the internal company rules, so long as the mandatory minimum rights of investors under its legislation are complied with.
Drag-along right (DAR) is a legal concept in corporate law.
Stock of a corporation, is all of the shares into which ownership of the corporation is divided. In American English, the shares are collectively known as "stock". A single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the stockholder to that fraction of the company's earnings, proceeds from liquidation of assets, or voting power, often dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is necessarily equal, as certain classes of stock may be issued for example without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.
In the law of the United States, federal preemption is the invalidation of a U.S. state law that conflicts with federal law.
Preemption was a term used in the nineteenth century to refer to a settler's right to purchase public land at a federally set minimum price; it was a right of first refusal. Usually this was conferred to male heads of households who developed the property into a farm. If he was a citizen or was taking steps to become one and he and his family developed the land he had the right to then buy that land for the minimum price. Land was otherwise sold through auction, typically at a price too high for these settlers. Preemption is similar to squatter's rights and mining claims.
Russian businesses may have one of several types of legal status. A business may operate as a limited liability company, or as a public or private joint-stock company, or may be run by a sole proprietor. Other types of commercial and non-commercial organizations are also recognized.
R v Symonds(The Queen v Symonds) incorporated the concept of Aboriginal title into New Zealand law and upheld the Government's pre-emptive right of purchase to Maori land deriving from the common law and expressed in the Treaty of Waitangi. Although the Native Lands Act 1862 waived Crown pre-emption, the notion of Aboriginal title has been revived in the 20th century to deal with Maori property rights.
Right of pre-emption. A potential buyer's contractual right to have the first opportunity to buy, at a specified price, if the seller chooses to sell within the contractual period. Also termed 'first option to buy'.CS1 maint: multiple names: authors list (link)