Pre-emptive rights, often referred to as pre-emption rights, safeguard the interests of current shareholders when a company issues new shares. These rights enable shareholders to maintain their proportionate ownership by granting them the option to purchase additional shares before the public or other investors.
In Australia, pre-emptive rights fall under the jurisdiction of the Corporations Act 2001 (Cth) and the company’s constitution. Their primary purpose is to shield shareholders from dilution caused by new share issues and to preserve their relative ownership in the company.
Various events can trigger pre-emptive rights, such as new share issuance, debt conversion into equity, or exercising options or warrants. In these cases, existing shareholders must have the opportunity to participate in the new share issue under the same terms and conditions as new investors.
However, pre-emptive rights may be limited or excluded by agreements between the company and its shareholders or through specific provisions in the company’s constitution. The Corporations Act 2001 (Cth) also outlines certain exceptions, like issuing shares to employees through an employee share scheme or providing shares to existing shareholders under a rights issue.
Companies and shareholders are advised to consult legal professionals before making decisions or entering agreements that may affect pre-emptive rights. This ensures compliance with relevant laws and regulations while safeguarding their interests.
If you have questions about pre-emptive rights or need assistance in navigating this complex area, the team at Bolter is here to help. Visit our website at bolter.com.au or contact us to discuss your unique situation and find the best solutions for your business.