Shareholders’ Preemptive Rights in Listed and Closely Held Corporations and Shareholders’ Protection Methods

The Article proceeds as follow. Part I focuses on the problem and the different interests at play when a corporation raises its share capital. In Part II I analyze and compare the European approach (“mandatory”) with the American one (“contractual opt-in”). In particular I shed light on how the two different regulatory approaches to the preemptive right relate with the ownership structure (concentrated or not) of the corporation. I also underline the differences existing between the two regulations with regard to the scope of the preemptive right protective effects. I come to the conclusion that the two systems show a common feature, namely – in contrast to dominant understanding – that the preemptive right in listed companies serves mainly if not exclusively the purpose or protecting the existing shareholders’ financial (but not voting) interests. Under this assumption, in Part III I turn to other possible methods of protecting shareholders’ interests when the corporation raises its capital, instead of granting a preemptive right. First, I take into account the only alternative methods which were originally used (both in Europe and in the U.S.), namely the appraisal right and the issuance of the new shares above Par. Second, I show that from the latest regulatory developments in Europe a “new” – but already in practice in the U.S. – alternative method for listed corporations has emerged, which is to guarantee that the existing shareholders willing to keep their (financial) proportional interest in the corporation are able to do so purchasing the new shares directly on the market. In fact, this kind of provisions have already been enacted in Germany and in Italy. Finally, in Part IV, I explore the policy implication of this thesis, by highlighting how the regulations might be adjusted in order to avoid shareholders’ over – or –under protection. As mentioned, I argue that only in close corporation there should be a mandatory (Europe) or at least opt-out (U.S.) preemptive right, while for listed companies the instrument of protection should consist exclusively of the possibility of purchasing the new shares on the market.