Explain and discuss the preemptive right of common stockhold

Explain and discuss the preemptive right of common stockholders. Is this fair? Why or why not

Solution

A preemptive right is a privilege that may be extended to certain shareholders of a corporation that grants them the right to purchase additional shares in the company prior to shares being made available for purchase by the general public in the event of a seasoned offering, which is a secondary issuing of stock.

In these rights shareholders percentage cannot be diluted .. suppose a company has 1000equity shares in which 10percent i.e,100shares were owned by a person.. if company issue new equity shares ..it should issue for existing share holders so that there percentage cannot be diluted.. it is fair .. as it is explained above.