preemptive right

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A preemptive right is a right of existing shareholders in a corporation to purchase newly issued stock before it is offered to others. The right is meant to protect current shareholders from dilution in value or control. Preemptive rights, if recognized, are usually set forth in the corporate charter. Shareholders will usually be issued a subscription warrant, which indicates how many shares of the newly issued stock they are entitled to buy, typically pro rata percentage of current ownership. Initially, this right was recognized by the courts as mandatory. However, in recent times most state laws deny a preemptive right unless it is specifically granted by corporate charter. 

[Last updated in March of 2022 by the Wex Definitions Team