What right allows common stockholders to maintain their proportional ownership when new shares are offered?

The pre-emptive right is a provision that gives common stockholders the ability to purchase additional shares in a new offering before those shares are available to other investors. This right is designed to allow existing shareholders to maintain their proportional ownership in the company when new shares are issued. By exercising this right, shareholders can prevent dilution of their ownership percentage and voting power.

This mechanism is particularly important in protecting the interests of existing shareholders, ensuring that they are not adversely affected by the issuance of new shares that could decrease their share of the company’s ownership and influence. In many corporate structures, this right is a key feature that enhances shareholder value and trust in the management’s dealings regarding new equity offerings.