Legal English – Peter’s Pills – Lesson 54 – Pre-emption right vs Right of first refusal

Legal English for Notaries - By Federnotizie

Pre-emption right vs Right of first refusal



Today we look at the difference between a Pre-emption right and a Right of first refusal.

Pre-emption Right: A pre-emption right is also known as a “right of first offer”. With reference to shares, this right may be found in the articles of association and grants existing shareholders the first opportunity to purchase new shares in a company before they are offered to third parties. This is generally to prevent the dilution of their shares in the company. New shares must be offered to existing shareholders in proportion to their existing holdings. If these shareholders decline to buy the shares, then the new shares may be offered to outside parties.

Right of First Refusal: A right of first refusal is a different concept from a preemption right and it provides an existing shareholder with the right to purchase the shares of another shareholder before those shares can be sold to a third party. If a shareholder intends to sell their existing shares, they must first offer them to the shareholder with the right of first refusal at a specified price. The shareholder with the right of first refusal has the option to either accept the offer and purchase the shares or decline the offer. If the offer is declined the other shareholder is allowed to proceed with the selling of the shares to a third party at the same terms.

Thank you, and see you next time for more Peter’s Pills to improve your legal English.

Read more about other similar rights here: “Pre-emption rights and rights of first refusal – first mover disadvantage?“.

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