Joe and I wrote a post last year about how to form a Washington corporation, and the importance of doing away with statutory preemptive rights held by shareholders. If a company did not to do this, all of its shareholders would automatically have the opportunity to participate pro rata in a subsequent issuance of any the company’s shares.
In 2020, the Washington legislature updated RCW 23B.06.300 to remove this preemptive right and flip the standard provision, depending on whether the corporation was form before or after January 1, 2020. Here is the relevant portion of the statute, with the parts I’m referring to bolded.
(1) The shareholders of a corporation do not have a preemptive right to acquire the corporation’s unissued shares except to the extent the articles of incorporation provide otherwise or as set forth in subsection (2) of this section. A statement included in the articles of incorporation that “the corporation elects to have preemptive rights,” or words of similar import, means that the provisions set forth in subsection (3) of this section apply except to the extent that the articles of incorporation provide otherwise.
(2) Unless the articles of incorporation provide otherwise, the shareholders of a corporation formed before January 1, 2020, have a preemptive right to acquire the corporation’s unissued shares.
(3) If shareholders of a corporation have a preemptive right to acquire the corporation’s unissued shares under this section, the following provisions apply
…
So, the rules are now this:
- If the corporation was formed after January 1, 2020, shareholders do not have an automatic statutory preemptive right unless they are granted one in the Articles of Incorporation of the company.
- If the corporation was formed before January 1, 2020, the old standard remains the same: the shareholders have an automatic statutory preemptive right unless the Articles of Incorporation of the Company say otherwise.
Be sure to keep all of this in mind if you’re involved in the preparation of a company’s charter.
Please contact me at graves@carneylaw.com if you have any questions.
By: James Graves
Disclaimer: this post is for informational/educational purposes only. It is not intended to provide any legal advice.