If a corporate charter includes a provision for preemptive rights, the stockholders
A)must sell their stock to the company.
B)get first option to buy additional issues of common stock.
C)may purchase existing treasury stock.
D)cannot utilize cumulative voting procedures.

Question

Quizplus · Accepted Answer

Preemptive rights gives the existing stockholders the first option to buy additional issues of common stock before they are offered to the general public. This allows the stockholders to maintain their proportional ownership in the company and avoid dilution of their ownership stake. Option A and C are incorrect as there is no requirement for stockholders to sell or purchase any stock. Option D is also incorrect as cumulative voting procedures are unrelated to preemptive rights.

If a Corporate Charter Includes a Provision for Preemptive Rights