Preemptive Rights

Preemptive rights are the contractual rights of existing stockholders to purchase their proportional share of any new equity issuance. They preserve the stockholder's ownership percentage by allowing pro-rata participation in dilutive issuances, with substantial overlap with pro-rata rights in venture-backed companies. It is a fundamental anti-dilution protection through participation, distinct from anti-dilution provisions that adjust prices rather than offering purchase rights.

The mechanic of preemptive rights:

• Trigger: company plans to issue new equity (e.g., new financing round, new preferred series).
• Notice: company notifies existing stockholders of the planned issuance, terms, and the stockholder's proportional pur...