Allen owns 50 of the 500 shares outstanding of General Myopics. GM plans to issue 500 new shares. If Allen has preemptive rights, he may:

A) buy all 500 shares before anyone else.
B) buy 500 shares at the same price he paid for the other stock.
C) buy 5 shares at a discount of 10%.
D) buy 50 of the 500 new shares.

Preemptive Rights

Rights that give existing shareholders the option to buy additional shares before the company offers them to the public, to maintain their proportionate ownership.

Outstanding Shares

Outstanding shares refer to the total number of shares of a corporation that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.