Stories

Think you’ve bought the shares? Think again

You have agreed the price. You have agreed the terms. The seller wants to sell to you.

Yet you still might not get the shares.

That is the reality of pre-emption rights. They can give existing shareholders the right to step into a buyer's shoes and buy the shares themselves. The ongoing battle for ownership at West Ham United (“West Ham”) is a timely reminder that, in many private companies, a seller of shares does not have the final say over who the buyer is.

West Ham may be one of London's most historic and recognisable clubs, but the same issues can arise across private companies when founders, investors or other shareholders seek to sell shares, raise investment or exit.

The West Ham Ownership Position

Earlier this summer, it was reported that the Gold family verbally agreed to sell their 25.1% shareholding in West Ham to a consortium led by Amanda Staveley (“PCP Investors”).

At the time, West Ham's ownership was concentrated between David Sullivan (38.8%), Daniel Křetínský (c.27%) and the Gold family (25.1%). The proposed sale was not just a matter between seller and buyer: it triggered the club’s pre-emption process, giving existing shareholders the chance to acquire the shares pro-rata to their existing shareholdings before they could be transferred to the PCP Investors.

This placed Křetínský in a difficult position. Acquiring the full 25.1% stake would increase his holding to over 50%, potentially triggering an obligation described to require a full buyout of the club at an inflated valuation. Allowing the sale to proceed, however, risked introducing a new influential shareholder group taking control.

Křetínský's solution was tactical. While the pre-emption process for the Gold family’s shares remained open, he arranged for the disposal of c.2% equity to fellow Czech entrepreneur Jakub Havrlant. That move gave him room to exercise pre-emption rights over the Gold family’s shares while avoiding straying over the crucial 50% threshold triggering the buyout obligation. It was also unlikely that the other major shareholders would equally participate in either pre-emption process: the Gold family were thought to be seeking an exit and David Sullivan seemingly would have been cautious about increasing his own stake given recent allegations against him and the Independent Football Regulator’s new powers to block acquisitions where a holder of at least 25% of a club fails its integrity test.

This saga demonstrates how pre-emption rights can significantly influence who is entitled to acquire shares put up for sale, regardless of the seller’s preferred purchaser.

What are Pre-Emption Rights?

Pre-emption rights give existing shareholders the opportunity to buy shares before they are issued or transferred to someone else. In practice, shares are usually offered to existing shareholders in proportion to their current holdings. If they do not take up their entitlement, the remaining shares may then be offered elsewhere. The purpose is to protect shareholders from unwanted dilution (i.e. their percentage shareholding of the company decreasing from what it was previously), preserve existing ownership percentages and, for share transfers, provide a degree of control over who becomes a shareholder in the business.

A statutory pre-emption right exists under section 561 of the UK Companies Act 2006. In broad terms, when a company issues new ordinary shares for cash, those shares must first be offered to existing shareholders in proportion to their existing holdings. However, this statutory protection is limited. It does not apply to share transfers and can be disapplied by a special resolution of shareholders or by excluding it entirely in the company’s articles of association.

As a result, many private companies build in and rely on bespoke provisions in their articles and/or shareholders' agreement. These usually govern both share issues and share transfers, setting out the process, timetable and any exceptions to how new shares can be issued and existing shares be transferred.

In practice, however, many transactions proceed only because shareholders agree not to exercise those rights. This is one reason why transaction planning is so important. Parties often spend months negotiating price and deal terms, only to discover that shareholder approvals, waivers or pre-emption procedures must be dealt with before completion of the transaction can occur. Constitutional documents will often contain a mechanism for shareholders, an investor majority or a lead investor to waive pre-emption rights, enabling a fundraising, investment or exit to proceed without delay. This means that pre-emption rights frequently operate more as a protective backstop rather than a hurdle to completing transactions.

The reported West Ham United situation is notable because the rights were not simply waived. Instead, shareholders appeared willing to use them strategically to influence the club's future ownership and control. It is a useful reminder that, when exercised, pre-emption rights can determine not only who acquires shares but where the control of a business will sit.

Why do pre-emption rights matter in early-stage businesses?

The West Ham position illustrates how pre-emption rights can delay a transaction, change the eventual buyer and reshape control. For founders, investors and minority shareholders, they protect three principal interests: ownership, value and influence.

Those consequences are not unique to football clubs. Similar issues arise in private companies whenever founders leave the business, investors seek an exit or new investors are introduced.

Whether you are a founder, major investor or minority shareholder, pre-emption rights typically protect three things: ownership, value and influence

Ownership

> Founder/Majority Shareholder: Ensure that unknown third parties are prevented from obtaining shares.

> Minority Shareholder: Get an equal opportunity as larger shareholders to increase or maintain ownership stake.

Value

> Founder/Majority Shareholder: Avoid unwanted dilution. 

> Minority Shareholder: Grow out shareholding in anticipation of a future growth in valuation.

Influence

> Founder/Majority Shareholder: Demonstrate long term belief in the business through continued investment.

> Minority Shareholder: Use participation to remain actively involved despite limited voting power.

Opponents argue that pre-emption rights can slow down fundraising and share sales. However, well-drafted constitutional documents can strike the right balance for the company, protecting existing shareholders whilst retaining sufficient flexibility for future investment and exit opportunities.

What should you consider?

We encourage clients to move beyond model articles (that a UK company automatically comes with when incorporated) and amend/replace those to adopt a pre-emption regime that fits the company’s growth plans. Many companies continue to operate with model articles or constitutional documents drafted when the business had only a handful of shareholders. As ownership structures evolve and new investors come on board, pre-emption provisions can become outdated. Rights that seemed sensible at incorporation may create delay, uncertainty or unintended leverage when a shareholder later wishes to exit. Reviewing them periodically helps ensure that they continue to support the company's commercial objectives.

The Real Lesson for Shareholders

Křetínský appears well placed to become West Ham's largest shareholder without triggering a full buyout. Yet the story may not be over. David Sullivan has reportedly indicated his intention to sell his 38.8% stake, with the PCP Investors expressing interest in a deal.

Whether the business is an elite level football club or an early-stage technology company, the principle is the same. Shareholders often focus on valuation and finding the right buyer. Yet the decisive question is often far simpler: can the deal actually proceed under the company's constitutional documents?

Pre-emption rights can determine who acquires the shares, when the transaction completes and, who ultimately controls the business.