Form S-3 demand: Overview, definition, and example
What is a Form S-3 demand?
A Form S-3 demand refers to a request made by shareholders of a publicly traded company, typically in the context of a securities offering, to require the company to register their securities under the Securities Act of 1933. Form S-3 is a registration statement used by eligible companies to register securities for public sale with the U.S. Securities and Exchange Commission (SEC). It is a simplified and less burdensome form compared to other registration forms, provided that the company meets certain eligibility requirements, such as having been a reporting company for a specified period and maintaining a certain level of public float.
A Form S-3 demand is typically made under a "demand registration" right granted to certain shareholders, allowing them to force the company to register their securities for resale to the public. This demand is particularly common in the context of private placements or initial public offerings (IPOs) where investors seek the ability to liquidate their holdings by selling securities on the open market.
Why is a Form S-3 demand important?
A Form S-3 demand is important because it provides shareholders with the ability to sell their shares publicly by requiring the company to file a registration statement with the SEC. This is crucial for investors who may have acquired securities through private placements or other transactions but are unable to sell them on the open market without registration. By invoking the Form S-3 demand, shareholders can gain access to the liquidity of public markets.
For companies, understanding the implications of a Form S-3 demand is important because responding to such demands can involve significant legal, financial, and operational considerations. Companies must comply with SEC regulations and ensure they can meet the eligibility requirements for using Form S-3. Additionally, filing a registration statement can involve costs, time, and potential disruptions to the company’s financial or operational plans.
Understanding Form S-3 demand through an example
Imagine a venture capital firm that holds a significant number of shares in a technology startup. After a successful IPO, the venture capital firm decides it wants to sell some of its shares on the open market. However, because these shares were purchased in a private placement, the firm cannot sell them publicly until the company registers the shares with the SEC. The venture capital firm invokes its right to a Form S-3 demand, requesting the company to file a registration statement with the SEC, allowing the firm to sell the shares on the public market.
In another example, a group of institutional investors who purchased shares in a company’s private placement agreement are entitled to demand that the company file a Form S-3 registration statement. This allows the institutional investors to resell their shares to the public, providing them with liquidity and the opportunity to monetize their investments.
An example of a Form S-3 demand clause
Here’s how a Form S-3 demand clause might appear in a shareholder agreement:
“Upon receipt of a written request from shareholders holding at least [X]% of the outstanding shares, the Company shall file a registration statement on Form S-3 with the SEC to register the resale of such shares. The Company shall use commercially reasonable efforts to cause such registration statement to be declared effective as soon as practicable, and shall bear all reasonable costs and expenses associated with the registration process.”
Conclusion
A Form S-3 demand is a mechanism that allows shareholders of a publicly traded company to require the company to register their securities with the SEC for public resale. This right is typically granted to certain shareholders through demand registration clauses and is important for ensuring liquidity for investors in private placements or other similar transactions. For companies, responding to a Form S-3 demand involves legal and operational considerations, including compliance with SEC regulations and the costs associated with the registration process.
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.