SIE practice questionmediumCommon Stock — Anti-dilution
An existing shareholder is concerned about dilution of their ownership stake when a company issues new shares. Which feature would protect this shareholder?
- APreemptive rights✓ Correct answer
- BCumulative voting rights
- CCallable provisions
- DParticipating preferred dividends
Explanation
Why A — Preemptive rights
Preemptive rights give existing shareholders the first opportunity to purchase new shares in proportion to their current ownership, preventing dilution. Cumulative voting (A) helps minority shareholders elect board members but does not prevent dilution. Callable provisions (C) relate to the issuer's right to redeem securities. Participating preferred (D) relates to dividend distribution.
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