Pre-emptive rights (or 'rights of pre-emption') are any rights shareholders may have to be offered shares in a company before they are made available to anyone else. They can arise on the allotment, transfer or transmission of shares. Such rights may be important to ensure that a shareholder's proportion of the voting and other rights in the company are not diluted.
Pre-emptive rights under the Companies Act 2006
These arise under CA 2006 Part 17, Chapter 3 sec561 to sec577. In outline, shares must be offered to existing members in proportion to their present holdings before being issued to anyone else. The offer must be in writing and the company must allow at least 21 days for the shareholder to take up the offer.
These pre-emptive rights do not apply if:
(a) the memorandum or articles of a private company exclude them or provide alternative provisions, e.g. to make more detailed provisions in respect of different classes of shares; or
(b) the company passes a special resolution to exclude them; or
(c) the shares are issued for non-cash consideration;
(d) shares within an employees' share scheme.
The shares could also be offered to the members who then waive their rights to them.
Many companies' articles contain provisions on the allotment of shares which either exclude the statutory rights or impose different provisions on share allotment. No issue of shares should be made without being sure what pre-emptive rights apply under the articles, and how the provisions in the articles relate to the current statutory provisions. Company Law Solutions can advise on these matters.
If there is a shareholders' agreement in effect this will often contain pre-emption provisions. The agreement will be a contract between those members of the company who are parties to it and often the company itself is a party and so bound by the provisions.
Pre-emption provisions on transfer or transmission
There are no statutory provisions relating to share transfers or transmissions, but they are quite commonly included in the articles of private companies as amendments to the Model Articles or Table A (in the case of older companies). Such provisions will also usually apply also to the transmission of shares (i.e. when a shareholder dies or is made bankrupt).
The Company Law Solutions website provides more information.