Question

Larry Nelson holds 1,000 shares of General Electric common stock. As a shareholder, he has the right to be involved in the election of its directors. These directors are responsible for managing the company and achieving the company’s objectives. True or False: The preemptive right allows Larry to purchase any additional shares sold by the company. This right will protect Larry from dilution in the value of the shares he holds.

Answer 1

Answer:

True

Explanation:

If GE's corporate charter includes preemptive rights provisions, then they will give current stockholders the right to purchase more stocks (in case the company issues more stocks) before any outside investors.

But not all corporations' charters include preemptive rights provisions, generally they do not. Preemptive rights are a way of protecting current stockholders from stock dilution in case the corporations decides to issue new stocks.