Shareholders’ Agreement – Pre-emptive Rights
We have previously blogged on the benefits of having a shareholders’ agreement, and common clauses in shareholders’ agreements. One of the matters that can be addressed by a shareholders’ agreement is having pre-emptive rights.
Pre-emptive rights provide existing shareholders (or those shareholders to which the right is granted in the agreement) the right to subscribe for any additional shares issued by the company, given them the chance to ensure their percentage ownership in the corporation is not diluted. Without a pre-emptive right, the company could issue shares to third parties or other shareholders without first offering existing shareholders the right to participate in the issuance.
Pre-emptive rights are often limited to certain issuances of shares (for example, shares issued as part of an employee stock option plan do not typically trigger pre-emptive rights), but this can all be stipulated in the provisions of the shareholders’ agreement.
Thinking of putting a shareholders’ agreement in place for your company? Contact us.