ExpertMedium1 markMultiple Choice
ACCA · Question 34 · Syllabus E: Capital and the financing of companies
What is the purpose of statutory pre-emption rights under the Companies Act 2006?
What is the purpose of statutory pre-emption rights under the Companies Act 2006?
Answer options:
A.
To allow directors to purchase shares before the public.
B.
To protect existing shareholders from dilution by requiring new equity shares to be offered to them first.
C.
To give preference shareholders priority in dividend payments.
D.
To allow the company to buy back its own shares.
How to approach this question
Understand the concept of 'anti-dilution' in company law.
Full Answer
B.To protect existing shareholders from dilution by requiring new equity shares to be offered to them first.✓ Correct
Statutory pre-emption rights ensure that when a company issues new equity shares for cash, it must first offer them to existing shareholders in proportion to their current holdings. This prevents the dilution of their voting power and financial interest in the company.
Common mistakes
Confusing pre-emption rights with preference shares.
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