ABC Ltd. is a closely-held corporation. Two of the shareholders serve as directors. As directors, they voted to issue themselves more shares to increase their voting control of the corporation. Which of the following provisions would aid the other shareholders?

Question

Quizplus · Accepted Answer

Preemptive right provisions give existing shareholders the right to purchase newly issued shares before they are offered to anyone else, which can prevent dilution of their ownership and control over the corporation. In this case, if ABC Ltd. had preemptive right provisions in its articles of incorporation, the two directors would not be able to issue themselves more shares without first offering them to the other shareholders. This would ensure that the other shareholders have a fair opportunity to maintain their percentage of ownership and voting control.

ABC Ltd Is a Closely-Held Corporation