Other registration rights: Overview, definition, and example
What are other registration rights?
Other registration rights refer to additional or supplemental rights granted to certain parties, usually investors or shareholders, to require a company to register their securities (such as shares or bonds) with the relevant regulatory authorities, like the Securities and Exchange Commission (SEC), or another appropriate body. These rights go beyond the basic registration rights granted in an agreement and may include various specific conditions, such as the ability to demand registration at certain times, for particular types of securities, or under particular circumstances.
For example, in a public offering, investors might be granted "piggyback registration rights," which allow them to include their securities in a company’s registration statement when the company registers its own securities. Other registration rights may include provisions for the timing, expenses, and priority of registration.
Why are other registration rights important?
Other registration rights are important because they give investors or shareholders the ability to sell their securities more easily in public markets. When securities are registered with a regulatory body, they become freely tradable, meaning they can be sold without restrictions. These rights help to provide liquidity for investors by ensuring that they can eventually sell their holdings, especially in cases where a company is going public or planning a secondary offering.
For companies, granting other registration rights can help attract investment by making their securities more attractive to investors, knowing that they will have the ability to sell the securities in the future. Additionally, these rights ensure compliance with securities laws, providing investors with the proper documentation for trading.
Understanding other registration rights through an example
Imagine a private company, Company A, is planning to go public. As part of their agreement with early investors, the company grants other registration rights to those investors, allowing them to require Company A to register their securities for public sale at a later time. Specifically, these investors have "demand registration rights," meaning they can ask Company A to file a registration statement with the SEC to facilitate the sale of their shares once the company goes public.
In another example, an investor, Investor B, holds shares in a company that has completed a public offering. As part of the agreement, Investor B has piggyback registration rights, which means that when the company registers its own securities for a new offering, Investor B can also include their shares in the same registration, allowing them to sell their securities in the public market at the same time.
An example of other registration rights clause
Here’s how a other registration rights clause might appear in an agreement:
“The Investor shall have the right to request that the Company register the Investor’s shares with the SEC, provided that such request is made in writing. The Company agrees to use reasonable efforts to file the registration statement within 30 days of such request, at the Company’s expense. If the Company registers its securities in a public offering, the Investor shall have the right to include its shares in the registration (piggyback registration rights), subject to customary underwriter restrictions.”
Conclusion
Other registration rights provide investors and shareholders with important flexibility and options to register their securities for public sale, thereby increasing their liquidity. These rights go beyond the standard provisions of registration and include specific conditions or advantages, such as the ability to demand registration at certain times or to piggyback on the company's own registration efforts. For both companies and investors, other registration rights ensure that the process of selling securities is streamlined and legally compliant, offering greater confidence in investment decisions.
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.