Registrable securities: Overview, definition, and example
What are registrable securities?
Registrable securities are securities (such as stocks, bonds, or other financial instruments) that can be registered with a securities regulator, like the U.S. Securities and Exchange Commission (SEC), to be offered to the public or traded in the open market. These securities are typically held by the issuer or certain investors and are subject to specific registration requirements under securities laws. Once registered, registrable securities can be sold or transferred freely, subject to any applicable restrictions. The process of registering these securities ensures that the offering complies with legal and regulatory standards, providing transparency and protection for investors.
For example, a company that issues stock may have registrable securities in the form of unregistered shares, which can later be registered for public trading.
Why are registrable securities important?
Registrable securities are important because they provide the mechanism for companies and issuers to make their securities available for public trade, thus allowing for liquidity, funding, and investment. Registering securities allows issuers to raise capital from the public, attract investors, and create transparency about the company’s financial position and operations. For investors, registrable securities offer the opportunity to buy or sell securities in a regulated market, which helps ensure fairness, security, and compliance with legal requirements. The registration process protects investors by requiring the issuer to disclose important information and adhere to established regulations.
Understanding registrable securities through an example
Let’s say a startup company issues shares to early investors, but these shares are not yet eligible for public trading because they haven’t been registered with the appropriate securities authority. These unregistered shares are considered "restricted" or "unregistered" securities. However, the company plans to conduct an initial public offering (IPO), and once the registration process is complete, those shares will become registrable securities that can be freely traded on the stock market.
In another example, a company issues bonds to institutional investors, but the bonds are not yet registered. Once the company files the required registration documents with the SEC, the bonds will become registrable securities, allowing them to be publicly traded or offered to a broader range of investors.
An example of a registrable securities clause
Here’s how a registrable securities clause might appear in an investment or shareholder agreement:
“The Company agrees to file a registration statement with the Securities and Exchange Commission (SEC) for the purpose of registering the shares of common stock held by the Investor as registrable securities, upon the request of the Investor, and to use commercially reasonable efforts to cause the registration statement to become effective within [insert number] days of filing.”
Conclusion
Registrable securities play a key role in enabling companies to access public markets and raise capital. By registering securities with the appropriate regulatory authorities, issuers ensure transparency, compliance, and investor protection. For investors, registrable securities offer the opportunity to buy or sell financial instruments with the confidence that they are subject to regulatory oversight and legal protections. Understanding the concept of registrable securities is essential for both issuers and investors in navigating public offerings and securities transactions.
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.