Pre-Emption Rights
Also called: Right of First Refusal · ROFR · Anti-Dilution Participation
Pre-emption rights give existing shareholders the first opportunity to buy new shares before they are offered to outside investors, or to buy shares another holder wishes to sell. They let shareholders maintain their percentage stake rather than being diluted involuntarily.
In more detail
Two distinct rights are often bundled under this heading: pre-emption on new issues (the right to participate in a funding round pro rata) and pre-emption on transfer (the right to buy shares an existing holder wants to sell before an outsider can).
Pre-emption is frequently confused with anti-dilution protection, but they solve different problems. Pre-emption lets you pay to maintain your stake; anti-dilution compensates you for a price drop without further investment.
For fast-moving funding rounds, an unwaivable pre-emption process with long notice windows can genuinely slow a deal down — which is why sophisticated agreements include a mechanism for a defined majority to waive it.
What our lawyers check
- Whether rights cover new issues, transfers, or both
- Notice periods and election windows, and their effect on deal speed
- Whether a defined majority can waive the process
- Carve-outs for option pools and agreed strategic issuances
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
All glossary terms