Pre-emption right (DPS)

The pre-emptive subscription right (droit préférentiel de souscription, DPS — or pre-emption right) is the existing shareholders' right to subscribe to any new share issuance in proportion to their current shareholding, before new shares are offered to third parties. Its purpose is to protect existing shareholders from dilution: without this right, a capital increase at a price below intrinsic value would reduce the per-share value and dilute minority shareholders' economic interest. The DPS is a fundamental protection mechanism in both French and Swiss corporate law.

In French corporate law (Article L. 225-132 of the Commercial Code), the DPS can be waived by an extraordinary general assembly vote (2/3 majority for an SA, unanimous for an SAS). The waiver may be in favor of a named beneficiary (e.g., a strategic investor or a management plan) or generically with a mandate to the board. In Swiss law (Article 652b CO), the DPS can similarly be waived by qualified majority but may also be restricted rather than fully excluded — allowing partial dilution protection.

In a private equity or venture capital context, the DPS interacts with anti-dilution provisions: a full ratchet anti-dilution clause may effectively force the issuance of new shares at the adjusted price, requiring the company to waive DPS for other shareholders in connection with the anti-dilution adjustment. In M&A transactions, outstanding DPS from recent capital increases must be checked in due diligence to ensure they have been validly waived or exercised before completing an acquisition.

At Hectelion, we analyze DPS implications in our due diligences and advise on capital structure operations in our structuring mandates.