Pre-emptive rights (often called "Rights Issue") are a privilege granted to existing shareholders to maintain their proportionate ownership in a company.
The Rule: Under Section 62 of the Companies Act, 2013, whenever a company proposes to increase its subscribed capital by issuing further shares, it must first offer them to the existing shareholders.
Proportion: These shares are offered in proportion to the paid-up share capital held by the shareholders at that date.
Purpose: This prevents "dilution" of voting power and value for existing members.
Exceptions: Shares can be issued to outsiders or employees (ESOPs) if a Special Resolution is passed by the shareholders.
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