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, usually a public offering. In this context, the pre-emptive right is also called subscription right or subscription privilege.It is the right but not the obligation of existing shareholders to buy the new shares before they are offered to the public. In that way, existing shareholders can maintain their proportional ownership of the company and thus prevent stock dilution. In many jurisdictions, subscription rights are automatically provided for by statute, such as in the United Kingdom, but in other jurisdictions, there arise only if provided for under the constitutional documents of the relevant company. In the United States, for example, 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 it has made an offer (on the same or on more favourable terms) to each person who already holds shares in the company in the proportion held by them, and the time limit given to the shareholder to accept the offer has expired.
By virtue of Section 562(5), the period given to the shareholders to accept such an offer must not be less than 14 days.
Those provisions' effect is that a company cannot allot shares to new shareholders until it has offered them to its 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 sometimes public companies can choose to disapply or modify the statutory 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 from 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 to afford to its subjects the preference of purchase. That form of right was sometimes regulated by treaty. A 1794 treaty between the United States and Great Britain agreed:
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 18th-century United States, when an individual bought the preemption right to land, he did not buy the land but only the right to buy the land.In the case of the Phelps and Gorham Purchase, the syndicate paid Massachusetts $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.
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A shareholder rights plan, colloquially known as a "poison pill", is a type of defensive tactic used by a corporation's board of directors against a takeover.
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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.
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The Preemption Act of 1841, also known as the Distributive Preemption Act, was a US 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.
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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.
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Drag-along right (DAR) is a legal concept in corporate law.
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In the law of the United States, federal preemption is the invalidation of a U.S. state law that conflicts with federal law.
Allen v Gold Reefs of West Africa Ltd  1 Ch 656 is a UK company law case concerning alteration of a company's articles of association. It held that alterations could not be interfered with by the court unless a change was made that was not bona fide for the benefit of the company as a whole. This rule served as a marginal form of minority shareholder protection at common law, before the existence of any unfair prejudice remedy.
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 Māori 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 Māori 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)