Posted on: 02 October, 2019
UK Company's Pre-emption Rights Explained
The shares of UK limited companies are issued to shareholders. When shares are transferred or sold to another party the existing company shareholders might have rights over the sold shares.
Pre-emptive rights are interrelated to the shareholders in a UK company, which might have to be offered shares in a company before they are made available to third parties. The pre-emption rights can arise during the transfer or the allotment of transfer of shares. These rights can prove to be significant while trying to ensure that a shareholder's part of voting and other rights in the company has been valued.
Pre-emption rights are generally included in the company's articles of association. Limited company members might want to include pre-emption rights to the articles during the company formation process. Alternatively, these can also be added afterwards by a special resolution at a general meeting. However, pre-emption rights can be removed from the articles at any time after company registration. This is done by conducting a meeting and recording the change with a special resolution. After that, you should update any shareholder's agreements to reflect this change.
Majority of the companies in the UK are formed with the help of one director and one shareholder not only for simplicity but also because many companies are owned and run by one person. Although, this is not always the case and the company can be registered with many other shareholders and issue a large number of shares or various share classes.
Moreover, it is important to remember that you can always issue more shares in the future, and rights can be applied where necessary through a special resolution.
If pre-emption rights are in one position and you have decided to increase the number of shares that will be issued to the new shareholders, you need to ensure that any existing shareholder is offered first. This will serve the purpose of pre-emption rights.
A shareholder of a company must have the right to waive his or her pre-emption rights for any reason either in one instance or for the future. In such cases, this should be documented accordingly. It is suggested that this decision should not be taken lightly, and one should seek legal advice. The existing shareholders' rights are protected by pre-emption rights, also to prevent the company from being taken over by their other investors.
If you want to set up a limited company in the UK with pre-emption rights, then you can upload your own modified articles of association when registering a new company.