Final answer:
The term preemptive right pertains to the right to purchase additional shares before a new issue. It allows existing shareholders to maintain their ownership in a company.
Step-by-step explanation:
The term preemptive right pertains to the right to purchase additional shares before a new issue. It allows existing shareholders to maintain their proportionate ownership in a company by giving them the first opportunity to buy new shares of stock before they are offered to the general public.
For example, if company XYZ decides to issue new shares, existing shareholders with preemptive rights can purchase these new shares before they are made available to other investors. This helps to protect the existing shareholders' ownership stake and preserve their voting power in the company.