Pre-emption Rights in Companies in England and Wales
See also: Corporate financeThe Companies Act 2006 is the source of shareholder pre-emption rights in English companies. Under section 561(1) of the Companies Act 2006 a company must not issue shares to any person unless:
- It has made an offer (on the same or more favourable terms) to each person who already holds shares in the company in the proportion held by them; and
- The time limit given to the shareholder to accept the offer has expired.
By virtue of section 562(5), the period given to the shareholders to accept such an offer must not be less than 14 days.
The effect of these provisions is that a company cannot allot shares to new shareholders until it has offered them to their existing shareholders. The company must give the shareholders at least 14 to decide whether or not they wish to purchase the shares.
Read more about this topic: Pre-emption Right
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