Definition of Preemptive Right

Preemptive Right is the right of a common stockholder to maintain their proportional ownership interest in a company. A corporation may not issue additional shares of common stock without first offering those shares to existing stockholders.

Applying "Preemptive Right" to Securities Exams:

When an investor purchases shares of common stock they are buying a piece of the company. Most investors only purchase a very small amount of the company on a percentage basis. No matter how small an investor’s percentage ownership is all investors have the right to maintain their proportional ownership and to not have their interest diluted. A shareholders preemptive right will be ensured through a rights offering by the company.

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