Meaning
Legal procedure to remove the default preemption rights of existing shareholders allows a company to issue new stock to specific new investors. A statutory disapplication is achieved through the articles of association or a special resolution passed by the members. By removing these rights, the board gains the power to allocate shares directly to venture capital firms without first offering them to every current holder.
This flexibility is required for rapid fundraising rounds.
Preemption Waiver
Shareholders surrender their right of first refusal over new share issuances to facilitate corporate growth. While the law protects investors from dilution, the statutory disapplication provides a way to admit strategic partners quickly. The waiver can be limited to a specific number of shares or a set period of time.
Director Authority
Board members receive the power to negotiate directly with incoming investors once the restrictions are lifted. The resolution for statutory disapplication must specify the maximum nominal value of the shares that can be issued under the authority. This prevents the management from issuing an unlimited amount of stock without returning to the shareholders for a new mandate.
Directors must still act in the best interest of the company when choosing which investors to accept.
Investment Efficiency
Filing the relevant resolution with the registrar of companies completes the legal process. This step ensures that the public record reflects the ability of the company to issue shares to non-holders. Resolution filings update the public record of the firm.
