Allocation of registrable securities: Overview, definition, and example
What is allocation of registrable securities?
Allocation of registrable securities refers to the process by which securities (such as stocks or bonds) that are eligible to be registered with a regulatory authority, like the SEC (Securities and Exchange Commission), are distributed or assigned to different investors. This process typically occurs when a company is looking to raise capital through a public offering or other investment opportunities. "Registrable" means that the securities can be legally listed or sold to the public after they are registered.
For example, in an IPO (Initial Public Offering), a company may allocate registrable securities to institutional investors, brokers, or the general public, ensuring that all parties have the chance to invest in the company’s shares once they are registered.
Why is allocation of registrable securities important?
The allocation process is important because it helps companies manage who gets access to their securities, ensuring that they can meet both regulatory requirements and their financial goals. Proper allocation ensures fairness, transparency, and compliance with securities laws, while also helping to maximize the company’s fundraising efforts. For investors, it provides an opportunity to acquire shares in a company that is going public or offering securities for sale.
In addition, allocation helps prevent manipulation or unfair practices, ensuring that investors have equal opportunities to participate in the offering, regardless of their size or influence.
Understanding allocation of registrable securities through an example
Imagine a company in the tech industry decides to go public and offers 1 million shares in an IPO. The company, through its underwriters, must allocate these shares to different investors. They might allocate 300,000 shares to institutional investors, 400,000 to individual brokers for resale, and the remaining 300,000 for retail investors (the general public).
The process ensures that the company meets its funding target, while also making the securities available to a variety of investors. Each group of investors can buy shares once the securities are registered and listed, in compliance with securities laws.
An example of an allocation of registrable securities clause
Here’s how a clause related to the allocation of registrable securities might appear in a contract:
“The Company agrees to allocate the registrable securities issued in this offering as follows: 50% to institutional investors, 30% to qualified brokers, and 20% to retail investors, subject to the applicable registration requirements under [insert relevant law/regulation].”
Conclusion
Allocation of registrable securities is a crucial step in a company’s capital-raising process. It ensures that securities are distributed fairly among investors, meets regulatory requirements, and supports the company’s fundraising goals. By clearly defining how securities are allocated, companies can protect themselves from legal issues and help investors understand their role in the offering.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.