Nov 4, 2009
What are "registration rights"?
Registration rights contractual provisions that require a company to register with the SEC the eventual sale of shares owned by investors. The purpose of these provisions is to insure that the investors will eventually have the ability to sell their shares, should there be a public market for the stock. Since these provisions typically come into play only after there has been an IPO, they are not much negotiated. Registration rights come in three types: demand, piggyback and S-3. The usual agreement provides that the investors may require (demand) registration of their sales on two occasions, that investors may have their sales registered at any time that the company registers sales for itself (other than in the IPO) or for other stockholders (with exceptions for registration of stock options and certain mergers), and that, if the company is eligible for so-called short form registration, that the investors can demand any number of such short form registrations provided that they include not less than a specified dollar value (often $1 million) of securities in each such registration. Registration rights typically terminate at such time as the investors can resell all of their shares without registering the sale with the SEC.
