Question

Larry Nelson holds 1,000 shares of General Electric (GE) common stock. As a stockholder, he has the right to be involved in the election of its directors, who are responsible for managing the company and achieving the company’s objectives. True or False: The preemptive right allows Larry to purchase any additional shares sold by the company. This right will protect Larry from dilution in the value of the stocks he holds.

Answer 1

The statement is true.

Step-by-step explanation:

The reason is that the preemptive right allows all the stockholder to receive an equal benefit from the rights issues which is the issue of the companies shares to current stockholders to avoid any dilution in stocks value and also for not effecting the stock percentage holding of the company. This right is also referred to as preemptive right of the stockholders.