Pre-emption rights (also known as "rights of first refusal" or "rights of first offer" depending on the context) are legal rights afforded to existing shareholders to have an opportunity to acquire new or existing shares in a company before they are offered to new investors. Pre-emption rights are designed to protect existing shareholders against dilution of their shareholdings when new shares are issued and limit the ability of third parties to hold shares when existing shares are transferred.
In respect of new share issues, a pre-emption right is embedded within the UK Companies Act 2006. This statutory right can be disapplied by way of a special resolution (a written resolution signed by the holders of at least 75% of the shares in issue) or disapplied within a company’s articles of association and a bespoke pre-emption right implemented in replacement.
There is no statutory pre-emption right that applies to the transfer of shares. However, it is common for companies to include such a right within their articles of association (and, in some cases, shareholders’ agreement). Where included, a shareholder wishing to transfer its shares must first offer those shares to the existing shareholders on a proportional basis, unless otherwise waived.