Pre-emption rights shareholders agreement: Understanding the Basics
A pre-emption rights shareholders agreement (PRSA) is a legal document that outlines the procedure for existing shareholders to purchase new shares before they are offered to third parties. It is an important agreement that governs how shares are issued and transferred in a company.
PRSA is usually included in the company’s articles of association or as a separate document. It is designed to protect the interests of existing shareholders by ensuring that they have the right of first refusal when new shares are issued.
The agreement sets out the terms and conditions for the pre-emption rights, including the percentage of new shares that can be offered to existing shareholders, the timeframe for exercising the right, and the price at which the new shares will be offered.
Benefits of a PRSA
A PRSA offers several benefits to existing shareholders. First, it allows them to maintain their share ownership percentage in the company by purchasing new shares before they are offered to third parties.
Second, it ensures that existing shareholders have a say in the future direction of the company by preventing dilution of their ownership.
Third, it provides a fair and transparent process for issuing new shares, which can help to prevent disputes and disagreements among shareholders.
Fourth, it can help to attract new investors by demonstrating that the company has a clear and equitable process for issuing shares.
Key Elements of a PRSA
The key elements of a PRSA include:
– The percentage of new shares that can be offered to existing shareholders
– The timeframe for exercising the right of first refusal
– The price at which the new shares will be offered
– The procedure for notifying existing shareholders of the new share issue
– The procedure for exercising the right of first refusal
– The consequences of failing to exercise the right of first refusal
Conclusion
A pre-emption rights shareholders agreement is a vital document for any company that wants to maintain control over the issuance of new shares. It offers existing shareholders the right of first refusal, which helps to protect their interests and prevent dilution of their ownership.
If you are a shareholder in a company, it is important to understand the provisions of the PRSA and how it affects your rights as a shareholder. It is also advisable to seek legal advice before entering into any agreements related to the issuance or transfer of shares.
