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”).
