Question

The right of a shareholder to share proportionally in any new stock issue is called a/an ____________ right.

Answer 1

The right of a shareholder to share proportionally in any new stock issue is called Preemptive rights.

Meaning & Importance :-

A Preemptive right is the right of existing shareholders to maintain their proportion of ownership of a company; they do so by acquiring their proportional share of any additional stock issuances. This right ensures that a shareholder's ownership interest is not diluted through the issuance of more shares. Preemptive right is important as they allow a shareholder to be able to protect themselves from having their shares de-valued by dilution or in a private company to prevent a shareholder from selling or transferring its shares to another party whom they may not wish to be in business with.