This article is for Irish company directors and shareholders who need to understand how pre-emption rights work when issuing new shares or raising investment.
If you're wondering why existing shareholders get first refusal on new shares, how to bring in outside investors without violating these rights, or when you can legally override them, this guide covers the statutory requirements, how to disapply pre-emption rights for funding rounds, and the key differences between constitutional and contractual protections.
Key Takeaways
• Pre-emption rights require you to offer new shares to existing shareholders first, preventing dilution of their ownership stake without consent.
• You need a special resolution (75% shareholder approval) to disapply pre-emption rights for each specific share issuance.
• Constitutional disapplication of pre-emption rights must be renewed every five years through special resolution to remain effective.
• Most professional investors require pre-emption rights to be disapplied before closing investment deals to ensure share availability.
• Shareholder agreements can impose stricter contractual pre-emption rights that remain binding even after statutory rights are disapplied.
Laura Ryan is a practising Barrister at the Bar of Ireland. She graduated from the Honourable Society of King’s Inns in 2024, having previously qualified and practised as a Chartered Accountant in a big four accounting firm.
What are pre-emption rights and how do they protect me as a shareholder?
Pre-emption rights give you first chance to buy newly issued shares before anyone else, protecting your ownership percentage from being diluted without your consent. For example, if you own 30% of a company and it issues new shares, you have the right to buy 30% of those new shares to maintain your stake. Without these rights, new investors could buy those shares and reduce your ownership from 30% to 20% overnight.
When do pre-emption rights actually apply to new share issuances?
Pre-emption rights only trigger when shares are issued for cash consideration, such as straightforward capital raises or convertible loan notes converting to shares. They don't apply to non-cash situations like share-for-share acquisitions, employee share option schemes, or shares issued to settle debts or pay for services.
How long do I have to decide whether to buy shares offered under pre-emption rights?
You must receive at least 14 days to consider whether to exercise your pre-emption rights. The company must send you proper notice in the same manner as general meeting notices, giving you reasonable time to make your decision.
Can my company remove pre-emption rights to bring in new investors?
Yes, your company can disapply pre-emption rights either through provisions in the company constitution or by passing a special resolution requiring 75% shareholder approval. Most professional investors require companies to disapply these rights before closing any investment deal to ensure certainty about the shares they'll receive.
Do pre-emption rights apply to shares issued to employees?
No, shares issued through employee share option schemes are exempt from statutory pre-emption rights because the law recognises that giving equity to employees benefits all shareholders. However, you should still review your constitution and shareholder agreements, as they might impose additional contractual restrictions on employee shares.
What's the difference between statutory and contractual pre-emption rights?
Statutory pre-emption rights (from the Companies Act 2014) only protect you when new shares are issued, while contractual pre-emption rights in shareholder agreements typically extend further, requiring shareholders to offer existing shares to other shareholders before selling to outsiders. Both can apply simultaneously, and contractual rights remain binding even if you disapply statutory rights.
If we include a constitutional provision removing pre-emption rights, does it last forever?
No, constitutional disapplication of pre-emption rights must be renewed every five years through special resolution to remain effective. This requirement ensures shareholders regularly reconsider whether removing this protection still serves the company's interests.
Should my early-stage startup remove pre-emption rights from our constitution?
If you're planning multiple venture capital funding rounds, removing pre-emption rights early typically makes sense because it simplifies future transactions and avoids requiring a special resolution for each funding round. However, if you have stable, long-term shareholders and uncertain capital needs, keeping pre-emption rights protects current shareholders from surprise dilution until you have better visibility on future fundraising.
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