Pre-emption Agreement UK: Everything You Need to Know
A pre-emption agreement is a legal document that outlines the rights of shareholders to buy additional shares in a company before they are offered to anyone else. In the UK, these agreements are commonly used to protect minority shareholders and ensure that they have a say in how the company is run.
What is a Pre-Emption Agreement UK?
A pre-emption agreement is a legally binding document that outlines the right of shareholders to buy additional shares in a company before they are offered to anyone else. Essentially, it gives existing shareholders the first right of refusal to purchase new shares before they are offered to new investors.
Why You Might Need a Pre-Emption Agreement UK
Pre-emption agreements are often used to protect minority shareholders. Without this agreement in place, majority shareholders could potentially dilute the value of the shares held by minority shareholders by issuing more shares to new investors. This would result in the minority shareholders owning a smaller percentage of the company.
Pre-emption agreements also ensure that shareholders have a say in how the company is run. With the right of first refusal, shareholders can prevent new investors from acquiring a significant stake in the company and potentially taking control.
How a Pre-Emption Agreement UK Works
A pre-emption agreement typically sets out the process for issuing new shares and the rights of existing shareholders. It will specify how many shares can be issued, who they can be offered to, and the time frame for exercising pre-emptive rights.
When a company decides to issue new shares, it must first offer them to existing shareholders. If a shareholder decides not to exercise their pre-emptive right, the shares can then be offered to new investors.
It is important to note that pre-emption agreements do not guarantee that existing shareholders will always be able to purchase new shares. If a shareholder cannot afford to purchase the new shares or decides not to exercise their pre-emptive right, the shares can be offered to new investors.
Enforcing a Pre-Emption Agreement UK
Pre-emption agreements are legally binding documents, so if a shareholder breaches the agreement, they can be held accountable. If a shareholder sells their shares to a new investor without first offering them to existing shareholders, for example, the other shareholders can take legal action to enforce the agreement.
It is recommended that pre-emption agreements are drafted by a solicitor to ensure that they are enforceable and cover all necessary legal requirements.
Pre-emption agreements are important legal documents that protect minority shareholders and ensure that they have a say in how the company is run. If you are considering investing in a company, it is important to understand whether a pre-emption agreement is in place and how it works. Consulting with a solicitor can help you navigate the process and ensure that your rights as a shareholder are protected.