To contact specialized
French Business Attorneys
Call us
E-library Corporate Law First, second and third rank pre-emption rights

First, second and third rank pre-emption rights

20 Feb 2013

A pre-emption clause may grant to certain shareholders (shareholders 1) a priority pre-emption right enabling them to pre-empt all or some of the shares for sale by priority over certain other shareholders (shareholders 2). The remaining shareholders (shareholders 2) will be able to pre-empt some or all of the shares for sale only if shareholders 1 do not exercise their pre-emption right or if they do not pre-empt all of the shares for sale.

In this case, shareholders 1 will have a “first-rank pre-emption right”, whereas shareholders 2 will have a “second-rank pre-emption right”.

Such pre-emption rights are frequent in companies whose shareholders belong to different groups and therefore have different interests. For example, if a company has two founding shareholders and three equity investors, then the pre-emption right may be structured as follows:

  • in the event of sale by a founder of all or part of its shares, the other founding shareholder shall have a first-rank pre-emption right over such shares, whereas the equity investors shall have a second-rank pre-emption right, and
  • in the event of sale by an equity investor of all or part of its shares, the other equity investors shall have a first-rank pre-emption right (exercisable pari passu), and the founding shareholders shall have a second-rank pre-emption right.

The purpose of a pre-emption right organised in ranks is to:

  • allow that the balance existing between different shareholders (or groups of shareholders) be preserved, or, conversely
  • enable a shareholder (or a group of shareholders) to increase their equity participation in the company.

Pre-emption clauses which provide for priority pre-emption rights to the benefit of certain shareholders of third parties constitute a “specific advantage”. Consequently, their inclusion in the bylaws of a company requires their evaluation by a court-appointed expert (“commissaire aux avantages particuliers”).

Pre-emption right and exercise conditions
Previous article
Pre-emption right and number of pre-empted shares
Following article
Contact a French business lawyer
Call us or fill in the form below. A French attorney will contact you within 6 to 24h
captcha
Call us at + 33 (0) 1 84 88 31 00
for a free quote
Who we are

French-business-law.com is the 1st online legal support solution which helps you find information and obtain specialized legal advice on French business law.

 

French-business-law.com entertains a network of experienced French business attorneys, who provide customized legal advice on French business law to clients in France and abroad.

Le-droit-des-affaires.com

Le-droit-des-affaires.com est le 1er site d’informations et de conseils juridiques en droit des affaires, animé par des avocats d’affaires.

 

Le-droit-des-affaires.com entretient un réseau d’avocats d’affaires expérimentés, qui fournissent un conseil personnalisé et sur mesure, tant en France qu’à l’étranger.

Newsletter
To receive our newsletter, information memoranda and news on French business law, please enter your email address.
Copyright © 2012 - 2013 French-business-law.com. All rights reserved.