SIE Exam Question 64: Answer and Explanation

Question: 64

Which of the following describe characteristics of a shareholder's preemptive rights?

• A. In the event that the number of new shares proposed to be sold by the corporation causes the number of outstanding shares to outnumber the number of shares they are authorized to sell, the current shareholders must approve the increase to authorized shares before the sale can proceed.
• B. Current shareholders are given the first option to purchase any new shares sold by a corporation.
• C. Only after current shareholders have declined the offer to purchase shares from the corporation’s new offering can the shares be offered for sale to the general investing public.
• D. All of the above are true.

Correct Answer: D

Explanation:

A shareholder's preemptive rights provide for him or her to receive the first option to purchase shares from any new offering conducted by the corporation, provide for the shares to be offered to the public only after they've been declined by the current shareholders, and require approval from the current shareholders for any increase to the number of the corporation's authorized shares.