George owns 500 of the 5000 shares outstanding of General Myopics

Law Sep 23, 2020

George owns 500 of the 5000 shares outstanding of General Myopics. GM plans to issue 600 new shares. If George has preemptive rights, he may:

a. buy all 600 shares before anyone else.

b. buy 600 shares at the same price he paid for the other stock.

c. buy 60 shares before anyone else.

d. buy 6 shares at a discount of 10%.

Expert Solution

Buy 60 shares before anyone else.

Preemptive right means that the shareholder can maintain his proportionate shareholding in case of issue of fresh shares. Since George owns 10% of the
outstanding shares, he has the right to subscribe to 10% of the fresh issue of 600 shares, ie, 60 shares.

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