Pre-emptive rights provision ensures that management cannot subvert the position of present shareholders by selling shares to outside interests without first offering them to current shareholders.

Question

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Pre-emptive rights provision allows current shareholders to maintain their proportional ownership in a company by giving them the right to purchase new shares before they are offered to outside investors. This prevents management from diluting the ownership of existing shareholders by selling shares to outsiders without giving them the opportunity to participate in the new issuance.

Pre-Emptive Rights Provision Ensures That Management Cannot Subvert the Position