The most important feature of the preemptive right is that the rights
A) may be sold for profit.
B) afford stockholders protection against dilution.
C) may be cumulatively voted.
D) are nontransferable.

Question

Quizplus · Accepted Answer

The most important feature of the preemptive right is that it affords stockholders protection against dilution by allowing them to maintain their proportional ownership in the company by purchasing new shares before they are offered to the general public. Option A is incorrect as selling the rights for profit is not the primary purpose of the preemptive right. Option C is referring to cumulative voting, which is a different concept. Option D is incorrect as the rights can be transferred, but only to another shareholder or person designated by the company.

The Most Important Feature of the Preemptive Right Is That