ACCA Applied Skills · Corporate and Business Law (Global) · Share capital
Zentra Ltd, a company incorporated under a Global-variant company law regime, wishes to issue new ordinary shares for cash. Which statement best describes the pre-emption right that normally applies?
Pre-emption rights require new equity shares issued for cash to be offered first to existing shareholders in proportion to their current holdings. This protects them from dilution of control and value. The directors cannot simply choose any allottee.
- AExisting shareholders must first be offered the new shares in proportion to their existing holdingsCorrect
- BThe directors may allot the new shares to any person they choose, provided the price is fair
- CNew shares must first be offered to the company's employees before anyone else
Explanation
Pre-emption rights protect existing shareholders from dilution of their voting power and economic interest. Shares to be issued for cash must first be offered to existing holders pro rata to their holdings. Free choice of allottee ignores that protection, and employees have no such priority.
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