Holders of registrable securities: Overview, definition, and example
What are holders of registrable securities?
Holders of registrable securities are individuals or entities that own securities (such as stocks, bonds, or other financial instruments) that are eligible to be registered with a regulatory authority, such as the Securities and Exchange Commission (SEC) in the United States. Registrable securities are typically securities that are not yet registered for public trading but can be registered at a later date, allowing them to be sold or traded in the public market.
These securities may be subject to restrictions, such as lock-up periods or limited transferability, until they are officially registered. Holders of registrable securities have the right to initiate the registration process or require the issuer to register their securities under certain conditions, usually when certain thresholds or criteria are met, such as a specific holding period or shareholder request.
Why are holders of registrable securities important?
Holders of registrable securities are important because they have the potential to bring privately held securities into the public market, increasing liquidity and allowing for broader investor participation. By registering these securities, the holders can sell or transfer them, often to capitalize on market conditions, raise funds, or exit an investment.
For companies, understanding the rights and obligations of holders of registrable securities is crucial, as it helps manage potential dilution, timing of public offerings, and regulatory compliance. For investors, it is essential to understand their rights to register and sell securities as part of their investment strategy.
Understanding holders of registrable securities through an example
Imagine a startup company that issued stock to early investors as part of a private funding round. These investors hold registrable securities because their shares are not yet registered for public sale. According to the terms of the investment agreement, these investors have the right to require the company to register their shares for public trading once the company meets certain criteria, such as reaching a specific revenue level or when an initial public offering (IPO) is planned.
In another example, a venture capital firm invests in a company and receives shares that are subject to a lock-up period. After the lock-up period ends, the venture capital firm can register these shares for sale on the public market. This process helps the firm realize a return on its investment by selling its holdings to the broader public.
An example of a holders of registrable securities clause
Here’s how a clause related to holders of registrable securities might look in a contract:
“The Holder of Registrable Securities has the right to request that the Company register their securities with the Securities and Exchange Commission (SEC) in accordance with applicable securities laws. The Company agrees to initiate the registration process within [insert time frame] upon receiving such a request, provided the Holder meets the conditions for registration set forth in this Agreement.”
Conclusion
Holders of registrable securities play a key role in the transition of private securities into the public market. By exercising their right to register and sell these securities, they can unlock liquidity and realize the value of their investment. For companies, managing the rights of holders of registrable securities is essential to maintaining control over the timing and execution of public offerings, ensuring compliance with securities regulations, and managing potential dilution.
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.