Pre-emption Rights

Q1 Best Answer: D

The shareholder is protected by the statutory pre-emption rights contained in the Companies Act 2006. Where a private company with one class of ordinary shares proposes to allot new equity securities for cash, those shares must first be offered to existing shareholders in proportion to their current holdings, unless the rights have been validly disapplied. Since the company has only one class of ordinary shares and uses the Model Articles, the shareholder should be offered the opportunity to subscribe for his proportionate share of the new issue before the shares are allotted to the outside investor.

Why the other answers are wrong:

A. Incorrect. Statutory pre-emption rights apply to private companies as well as public companies, unless excluded or disapplied.

B. Incorrect. The protection arises primarily from statute, not from a contractual right under the Model Articles.

C. Incorrect. A shareholder holding 10% cannot generally block a special resolution, which requires at least 75% approval. In any event, the issue concerns pre-emption rights rather than a right to veto the allotment.

E. Incorrect. The allotment does not affect class rights because the company has only one class of ordinary shares. Dilution of voting power is not, by itself, a variation of class rights requiring unanimous approval.