A pre-emptive right refers to the right of existing shareholders to sue management in order to head off potential actions by management that would adversely affect the price of the stock.

Question

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A pre-emptive right actually refers to the right of existing shareholders to maintain their proportionate ownership in the company by purchasing newly issued shares before they are offered to the general public. It does not involve the ability to sue management.

A Pre-Emptive Right Refers to the Right of Existing Shareholders