SIE practice questionmediumPreemptive Rights
An investor owns 5% of a company’s shares. The company issues preemptive rights during a new offering. What is the purpose of these rights?
- ATo allow the investor to maintain their 5% ownership by purchasing new shares first.✓ Correct answer
- BTo give the investor additional voting rights.
- CTo force the investor to sell existing shares.
- DTo require the company to buy back the investor's shares.
Explanation
Why A — To allow the investor to maintain their 5% ownership by purchasing new shares first.
Preemptive rights let existing shareholders maintain their proportional ownership. They don't increase voting power, force sales, or require buybacks.
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