CMA Final · Entrepreneurship and Startup · The Entrepreneurial Ecosystem
A startup's founders agree to a clause that lets early investors buy new shares in each later round to maintain their percentage holding. This right is best described as:
This is a pre-emptive right, which allows existing investors to subscribe to new share issues in proportion to their holding so that their percentage stake is not diluted. Drag-along and tag-along rights concern participation in a sale of shares, not subscribing to fresh issues.
- ADrag-along right
- BTag-along right
- CPre-emptive (anti-dilution participation) rightCorrect
- DRight of first refusal on promoter's personal assets
Explanation
A pre-emptive right lets existing investors subscribe to new issues pro rata so their percentage is not diluted. Drag-along forces minority holders to join a sale, and tag-along lets minority holders join a promoter's sale; neither concerns subscribing to new shares.
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