What is a pre-emption waiver letter?
The basics: This document is a letter under which an existing shareholder agrees to waive any rights (known as 'pre-emption rights' or 'rights of first refusal') they may have to be offered shares that are being transferred by another existing shareholder to someone else or which are being issued by a company. These rights allow a shareholder to either consolidate their shareholding (in the case of a transfer of existing shares) or protect their shareholding against dilution (in the case of an issue of new shares) if they so choose.
This 'waiver' ensures that none of the existing shareholders can claim that they weren't given the opportunity to exercise their pre-emption rights or rights of first refusal.
Where are pre-emption rights set out?
A company's articles of association or shareholders' agreement may require a written waiver to be provided by any existing shareholders that do not wish to exercise their pre-emption rights. You wouldn't use this document where a company's articles of association or shareholders' agreement allow for pre-emption rights to be ignored or 'disapplied' by shareholder resolution or with the consent of a certain group of shareholders.
How is the pre-emption waiver letter executed?
This document should be signed as a deed which means, in the case of a company, by two directors, one director and a secretary (if appointed) or one director in the presence of a witness and, in the case of an individual, by that individual in presence of an independent witness. It can be used for up to three shareholders at any one time.
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Tags: pre-emption rights, waiver of rights, shareholder waiver, shareholder rights waiver, waiver of pre-emption rights template