Pre-emption rights in private companies allow existing shareholders to maintain their proportionate ownership stake in the company when new shares are issued. Here’s an overview:

Types of Pre-emption Rights

1. Pro-rata pre-emption rights: Existing shareholders have the right to purchase a proportionate amount of new shares.
2. Full pre-emption rights: Existing shareholders have the right to purchase all new shares.
3. Partial pre-emption rights: Existing shareholders have the right to purchase a portion of new shares.

Purposes of Pre-emption Rights

1. Maintain control: Prevent dilution of ownership and control.
2. Protect shareholder value: Ensure existing shareholders maintain their investment value.
3. Prevent market volatility: Limit sudden changes in share price.
4. Comply with regulations: Fulfill securities laws and exchange requirements.

Examples of Pre-emption Rights

1. Rights Issue: Company issues new shares to existing shareholders.
2. Private Placement: Company issues new shares to new investors, but existing shareholders have pre-emption rights.