Also known as: pro-rata rule · prorata rule · pro rata · prorata
Written by attorneys · grounded in primary & secondary sources — see below
A principle of proportional allocation requiring that distributions of assets, shares, or payments be divided among qualified recipients according to their respective ownership interests or claims. The principle ensures equal treatment within the same class or priority level when resources are limited. It applies whether the allocation occurs in corporate distributions, tender offers, or estate proceedings.
Prime Logistics decides to liquidate and distribute its remaining cash reserves to its two classes of shareholders. The board calculates each shareholder's ownership percentage and issues payments accordingly. Pavel Petrov, holding 40 percent of the common shares, receives exactly 40 percent of the available funds while the preferred holders receive their allocated portion.
Prosperity Investments declares a 15 percent stock dividend on its common shares. The board issues additional shares to every common shareholder in direct proportion to existing holdings without requiring payment. Piper Patel, who owns 200 shares, receives 30 new shares while all other common holders receive the same proportional increase.
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Pioneer Energy launches a tender offer for 60 percent of its outstanding shares at a premium price. When the offer is oversubscribed, the company accepts tendered shares from all participating holders on a proportional basis. Philip Powell, who tendered 1,000 shares, has 600 accepted while every other tendering shareholder experiences the same percentage reduction.
Pinnacle Holdings makes a partial tender offer for shares of a target company. After receiving tenders exceeding the number sought, the bidder takes up the shares from each tendering holder in proportion to the total oversubscription. Pierre Poulin, who tendered 2,500 shares, sees 1,800 accepted under the uniform reduction applied to all participants.
A bidder offers to purchase 40 percent of a class of shares and receives tenders from holders representing 70 percent of the class. The bidder purchases from each tendering holder a percentage of the shares tendered that equals the ratio of shares sought to total shares tendered. Phuong Pham, tendering 800 shares, has 457 shares purchased while the same ratio applies to every other tender.
An acquirer seeks 55 percent of a target's shares through a tender offer that becomes oversubscribed. The bidder accepts a uniform percentage of each tendered block so that the total acquired equals exactly 55 percent. Perry Pratt, who tendered his entire 1,200-share holding, has 660 shares purchased under the identical percentage applied across all tenders.
No. The principle permits in-kind distributions of fungible assets when each recipient receives a proportionate share equal in value to the recipient's entitlement. Partnership statutes expressly allow such distributions provided the assets meet the fungibility requirement and the allocation remains proportional.
Yes. In closely held corporations, unanimous written shareholder agreements may authorize non-pro rata distributions provided the corporation satisfies statutory solvency limits. The agreement reallocates distribution authority and is effective among the shareholders and the corporation.
The bidder must accept tendered securities from each holder in proportion to the total number of shares tendered so that the total acquired equals the number sought. The statute extends the proration period to the entire duration of the offer under applicable SEC rules.
Yes. Shares issued as a dividend must be distributed pro rata to holders of the same class or series unless the articles of incorporation provide otherwise. The issuance occurs without consideration and constitutes a share dividend.
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