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Corporate/Business Shareholder Preemptive Rights, Options

With Missouri corporations — both closely held and public — one of the major issues that must be addressed is whether stockholders are entitled to preemptive rights. Simply speaking, preemptive rights allow stockholders to purchase stock in future sales of stock, thus allowing them to maintain their ownership percentage in the corporation. For instance, if I own twenty (20%) of XYZ corporation, and the board of directors offer 10 more shares of stock, preemptive rights would enable me to purchase the number of shares of those 10 additional shares necessary to maintain 20% ownership.

This is a sort of right of first refusal. As one Missouri court explained in a different context: “A right of first refusal, also known as a preemption or a preemptive right, requires the seller, when or if he or she decides to sell, to first offer the property to the holder of the right, either at a stipulated price or at the price and on the terms the seller is willing to sell.” Allison v. Agribank, FCB, 949 S.W.2d 182, 187 (Mo. App. 1997). Preemptive rights shouldn’t be confused with an option. An option gives the option-holder the power to compel the owner to sell it at a stipulated price whether or not he or she is willing to part with ownership. Hendircks v. Northcutt, 820 S.W.2d 689, 692 (Mo. App. 1991). Preemptive rights merely requires the owner — if he or she decides to sell — to first offer the property to the preemption holder at a stipulated price.

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