Question

George is an employee of ABC Corp. George is a resident of Texas, and ABC Corp. is incorporated in Texas. George acquired stock pursuant to an employee stock ownership plan in 2017. In 2018, ABC Corp. issues an additional 5,000 shares of stock. Which of the following, if any, is true:

a. In Texas, there is no such thing as a preemptive right in stock.

b. None of the other choices are correct.

c. George has a preemptive right to some of the shares of the newly issued 5,000 shares only if so provided as an employee benefit.

d. By statute, George has no preemptive right to some of the shares of the newly issued 5,000 shares because he acquired his stock pursuant to an employee stock ownership plan.

e. By statute, George has a preemptive right to some of the shares of the newly issued 5,000 shares because he acquired his stock pursuant to an employee stock ownership plan.

Answer 1

Preemptive right in stock refer to the right of the shareholder to purchase the new shares issued in proportion to his current holding. However, in Texas, there is no assumed or default right to purchase new shares issued. Preemptive Rights must be stated in the Certificate of Formation or they do not exist. However, no information is given regarding this and rules regarding Preemptive rights explicitly exempt shares issued under Employee stock ownership plan. Thus correct answer is Option D.

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