ACCA Applied Skills · Corporate and Business Law (Global) · Share capital
Karim Ltd, a company, wishes to issue new ordinary shares for cash. Existing members hold shares in proportion to their holdings. Under the pre-emption principle applying in the syllabus, how must the shares normally be offered first?
New equity shares issued for cash must first be offered to existing equity shareholders in proportion to their holdings. This pre-emption right protects them from dilution of their voting and economic interests unless the right is validly disapplied.
- ATo existing equity shareholders in proportion to their existing holdingsCorrect
- BTo the directors in equal numbers
- CTo the company's employees only
- DTo the highest bidder from the public
Explanation
Pre-emption rights require that new equity shares issued for cash are first offered to existing equity holders pro rata, protecting them from dilution. Offering to directors, employees or the highest bidder would bypass this protection unless rights are disapplied.
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