Preemptive rights and participation rights are provisions in shareholder agreements that allow existing shareholders to maintain their proportional ownership in a company by purchasing additional shares before they are offered to third parties.
Preemptive rights give existing shareholders the right to purchase new shares before they are offered to third parties. This means that if a company wants to issue new shares, it must first offer them to its existing shareholders. If the existing shareholders decline to purchase the new shares, the company can then offer them to third parties.
Preemptive and participation rights are designed to protect existing shareholders from dilution of their ownership in the company. By giving existing shareholders the right to purchase new shares before they are offered to third parties, these provisions ensure that existing shareholders can maintain their proportional ownership in the company.
