Piggyback registration: Overview, definition, and example
What is piggyback registration?
Piggyback registration refers to a provision in a securities offering where a company allows a shareholder or another party to include their shares in the company’s registration statement when the company is registering its own securities for public sale. This gives the shareholder the right to "piggyback" on the company's registration, enabling them to sell their shares alongside the company's offering without needing to file a separate registration statement. This provision is often seen in private placements or shareholder agreements as a way to allow investors to liquidate their holdings more easily.
For example, if a company is planning an initial public offering (IPO), existing investors may have the right to include their shares in the IPO registration, allowing them to sell at the same time as the company, using the same registration statement.
Why is piggyback registration important?
Piggyback registration is important because it allows existing shareholders, particularly early investors or employees, to sell their shares without the added cost and complexity of a separate registration process. It can be a key benefit in private investment deals, giving investors a path to liquidity when the company goes public. For the company, piggyback registration can make it easier to attract investors by providing them with an exit strategy if they want to liquidate their position after an IPO or public offering.
For businesses, understanding piggyback registration is crucial when negotiating investment deals, as it impacts both the company's ability to control its public offering and the rights of existing investors.
Understanding piggyback registration through an example
Imagine a tech startup that is preparing for an IPO. As part of the offering, the company allows its early investors, who hold large amounts of company shares, to "piggyback" on the IPO registration. These investors will be able to sell their shares at the same time the company goes public, without needing to file their own separate registration with the SEC. This gives the investors an opportunity to exit their investment, while also providing the company with additional funding through its own offering.
In another example, a private equity firm that has invested in a growing business may have the right to piggyback on the company’s registration if the company decides to go public. This ensures the firm can sell its shares in the public offering alongside the company, facilitating an exit for their investment.
An example of a piggyback registration clause
Here’s how a piggyback registration clause might look in a contract:
“In the event that the Company files a registration statement for a public offering of its securities, the Company shall allow any shareholder holding [Insert Number] or more shares to include their shares in the registration statement on the same terms as the Company’s offering, subject to customary conditions and limitations.”
Conclusion
Piggyback registration is a useful provision that allows shareholders to take advantage of a company’s public offering to sell their shares without going through a separate registration process. It benefits investors by providing an exit strategy, while also making the offering more attractive by including additional shares in the sale.
For businesses, offering piggyback registration can be a valuable tool for attracting investors, but it’s important to carefully consider the terms and conditions under which it’s granted, as it can impact the company’s control over its securities offerings.
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.