Piggyback Registration Rights
Piggyback registration rights are a valuable tool for investors in public companies. These rights serve as a type of insurance policy for investors that provides added financial security. They are an important factor to consider when investing in any public company, as they can offer significant protection against an unexpected loss.
Definition of Piggyback Registration Rights
Piggyback registration allows a company to include its shareholders’ securities in a registration statement that someone else is filing. This can save time, money, and paperwork for the company since it doesn’t need to go through the entire registration process. Piggyback registration rights are typically granted to shareholders when the company holds an initial public offering or IPO.
This can be beneficial to investors, as it allows them to sell their securities in a timely manner, potentially avoiding market risks associated with a delayed sale. Investors need to understand the implications of piggyback registration rights, including the fact that the other shareholder’s registration statement must include adequate information about their securities.
Understanding Piggyback Registration Rights
Piggyback registration rights are occasionally excluded in favor of investors with demand registration rights because they are thought to be inferior to demand registration rights. This might occur if the registration’s underwriter decides that the market won’t be able to support all the shares included in the registration.
However, investors with piggyback registration rights are typically permitted to participate in an infinite number of registrations, compared to investors with demanded registration rights.
Demand Registration vs. Piggyback Registration
Piggyback registration rights are contractual agreements that allow one party to register their securities with the Securities and Exchange Commission (SEC) when another party registers theirs. Typically, such rights are extended to shareholders or founders of a company as part of a private placement agreement.
While demand registration is when shareholders are entitled to demand that a company undertake an IPO.
The Bottom Line
Piggyback registration rights are an important tool for companies to use when issuing stocks. By understanding the concept of piggyback registration rights, companies can ensure that their investors are adequately protected and that they are able to capitalize on the success of the company.