What happens if shareholders lapse their pre-emption rights?

When shareholders lapse their pre-emption rights, they essentially forfeit their first opportunity to purchase additional shares in a new issuance before the company offers them to other potential buyers. This mechanism is designed to protect shareholders from dilution of their ownership stake.

If shareholders do not exercise their pre-emption rights, the company can issue the new shares to other parties—typically at a predetermined price. In many cases, the shareholders who opted not to partake in this opportunity may receive a cash compensation for the value they have given up by not exercising their rights. This means they would effectively receive cash instead of being allocated new shares, thus ensuring they are compensated for their decreased ownership in the company.

The other possibilities do not align with the consequences of not exercising pre-emption rights. For example, losing all voting rights does not typically occur simply because shareholders do not take part in new share issuances—they retain their voting rights. Likewise, shares aren't automatically sold, nor are shareholders limited to future allocations without the opportunity to receive compensation for their existing shares’ value when they opt out.