Question

Mr. Rob O'Leary owns 17.6 percent of the existing shares of stock in Dyna Corp. The corporation is presently issuing new stock. Before the stock is offered to other investors, Mr. O'Leary buys 17.6 percent of the new shares to maintain his share of ownership in the company. By doing so, Mr. O'Leary is exercising his _____.

Answer 1

Answer:

Preemptive Right

Explanation:

Preemptive rights is the right of an investor to maintain his/her percentage ownership of the organization by buying proportionate number of shares of any future issue. Put simply, it is the right that allows an investor to maintain same percentage of ownership of an organization common stock buy purchasing new shares/security before it becomes available to the public. In this case, Rob exercises his preemptive right buy purchasing 17.6% of new shares to maintain his ownership before the shares was available for the public to purchase.