What do preemptive rights allow existing shareholders to do?

Preemptive rights are designed to protect existing shareholders from dilution of their ownership percentage when a corporation issues additional shares. This means that if the company decides to issue new stock, shareholders with preemptive rights have the opportunity to purchase enough shares to maintain their proportional ownership in the corporation. By doing so, they can prevent their ownership stake from decreasing as the total number of shares increases.

This mechanism is particularly important in maintaining shareholder control and ensuring that existing investors have a chance to invest further in the company before the shares are offered to new investors or the market at large. It gives shareholders the ability to preserve their voting power and economic interests within the company.

In contrast, the other options do not reflect the specific purpose of preemptive rights. Selling shares without restrictions relates to liquidity and transferability, voting on corporate matters pertains to governance, and automatically receiving additional dividends relates to profit distribution rather than ownership maintenance. Thus, the correct understanding of preemptive rights is that they specifically allow shareholders to maintain their ownership percentage through the opportunity to buy additional shares during new issuances.