Preemptive rights refer to the right of existing stockholders of a corporation to purchase a ratable portion of shares of a new issuance of stock. As an example, if a shareholder owns 10% of the common stock of a corporation with preemtpive rights, and the corporation issues 200 new shares of common stock, the stockholder will have the right to purchase 20 of the 200 shares of stock.
The purpose of preemptive rights is to allow a shareholder to preserve his or her proportionate share in the corporation and avoid the dilution that can come through stock issuances. This is especially important where shares are issued at a price below their fair market value, because in such case shareholders who do not puchase shares in the offering actually lose value as a result of the offering.
Preemptive rights were once widely required by judicial decisions and corporate statues, but are much less common today. States have generally made preemptive rights optional, either through an "opt-in" or an "opt-out" provision in the company's charter. Although closely held corporations may choose to institute preemptive rights, such rights would be uncommon in a publicly traded corporation.