A pre-emption right gives the right to a company’s existing shareholders to purchase the shares of an exiting shareholder before they are offered to alternative third parties.

Companies Act 2006 requirements

The Companies Act 2006 gives existing shareholders of a company a right of pre-emption, or first refusal, on a share sale. It provides that the company may not allot equity securities (shares) until it has first made an offer to existing ordinary shareholders to purchase the same. This will apply unless there is an exception under the Companies Act, or these rights have been specifically excluded by the company. Any of the pre-emption requirements under the Companies Act can be excluded in a private company by the company’s Articles of Association.

  • the Companies Act also sets out the full procedure for communicating pre-emptive share offers to existing shareholders;
  • public listed companies will have specific guidelines to follow, and these will need to be checked carefully on share sales.

If you wish to follow either procedure, contact our expert team at Francis Wilks & Jones and we can advise and guide you on the correct legal process to follow.


The Companies Act provides some exceptions to the right of pre-emption on the sale of some shares. In particular, they don’t apply on the allotment of:

  • bonus shares; or
  • shares wholly or partly paid up otherwise than in cash, or
  • shares held or transferred pursuant to an employees’ share scheme, or
  • shares taken by the subscribers to the Memorandum of Association of the company on incorporation.

There are further powers under legislation to disapply the right in certain circumstances. If you would like further information on this please contact one of our friendly team who can talk you through all of the relevant issues.

Shareholders agreement

Such a right of pre-emption or first refusal may also be detailed in a shareholders’ agreement. This is an agreement made between the shareholders and the company.

A shareholders agreement might contain more specifics on how the pre-emption right will work in practice. For example, an agreement might contain restrictions on the transfer of shares to stipulate that only a certain class of individuals can hold shares in the company. This might be the case in a family run company where only family members are allowed to be shareholders.

Pre-emption rights can be complex, and can be detrimental to a shareholder in a private company trying to exit their shareholding.

At Francis Wilks & Jones we frequently act for companies by advising on and setting up shareholders agreements, and/or in tailoring Articles of Association to set out pre-emptive rights specific to a particular company. We also advise on all aspects of shareholder exits, including following shareholder disputes or just simply due to retirement. If you or your company would like further information on any aspect of sale of shares, exiting a shareholding or pre-emption rights, contact our team of experts today who will be happy to have a chat with you.

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