SIE practice questionmediumPreemptive Rights
The primary function of preemptive rights is to:
- AAllow immediate conversion to preferred shares.
- BAssign additional voting power.
- CGrant fixed dividend payments.
- DPrevent dilution of existing shareholders’ ownership percentage.✓ Correct answer
Explanation
Why D — Prevent dilution of existing shareholders’ ownership percentage.
Preemptive rights allow shareholders to buy new shares to keep their ownership constant. They do not affect voting, dividends, or conversions.
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