Some companies choose to remove the right of pre-emption because it can be uncomfortable when they try to raise money from the issuance of shares. The effect of these provisions is that a company does not transfer shares to new shareholders until it has offered them to its existing shareholders. The company must give shareholders at least 14 days to decide whether or not to acquire the shares. Private companies and, in some cases, state-owned enterprises may refuse or modify legal pre-emption rights, either in general or with respect to a specified allocation (sections 569 to 573 of the Companies Act 2006). At the time of the first purchase, shareholders are generally issued “subscription notes,” specifying the number of shares they can acquire as a pre-emption right. You would accept the purchase or subscription of 10 shares of the new share if you exercise your right of pre-emption in order to preserve your proportional interest. However, if an agreement provides for a pre-emption right, you can exercise your right to maintain your initial 10% interest in the company and to accept the purchase or subscription of 100 shares of the new share. All you need to do is pay $500 for the new share (100 shares at $5 per share) to the company and you own the same 10% of the company`s total (200 shares of 2,000 shares outstanding). In practice, the most common right of pre-emption is the right of existing shareholders to acquire new shares issued by a company in connection with a subscription rights issue, usually a public offering. In this context, the right of pre-emption is also called subscription or subscription privilege.  This is the right, but not the obligation for existing shareholders to purchase the new shares before they are made available to the public. In this way, existing shareholders will be able to maintain their proportionate ownership of the company and thus avoid dilution of the shares.  In many legal systems, subscription rights are automatically provided by law, for example in the United Kingdom.B, but in other jurisdictions this only happens if it is provided for in the constitutional documents of the company concerned.
In the United States, for example, it is rare for listed companies to grant pre-emption rights to shareholders, but it is customary for unlisted companies to grant venture capital and private equity rights to investors. The European Union has brought an action for breach against Spain on the basis that the absence of legal pre-emption rights under Spanish law is contrary to the second directive on corporate law.  As used in a company`s shareholder or corporate agreements in the United States, the right of pre-emption is important to shareholders because it protects current shareholders from dilution of their stake in the company.