Currently, you own 1.2 percent of the outstanding shares of Home Security. The firm has decided to issue additional shares of stock and has given you the first option to purchase 1.2 percent of those additional shares. What type of offer is this?

Business · High School · Sun Jan 24 2021

Answered on

The type of offer you have received from Home Security, where you are given the first option to purchase an additional 1.2 percent of the shares being issued, is known as a "preemptive right." Preemptive rights, also known as subscription rights or anti-dilution rights, allow existing shareholders to maintain their proportional ownership in a company when new shares are issued. As an existing shareholder, this means you have the right but not the obligation, to buy additional shares to prevent dilution of your current ownership percentage.

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