Shelf registration: Overview, definition, and example
What is shelf registration?
Shelf registration is a procedure that allows a company to register a new securities offering with the Securities and Exchange Commission (SEC) and then sell those securities in multiple offerings over a period of time, typically up to three years. This process is most commonly used by public companies to streamline the process of issuing new securities, such as stocks or bonds, when market conditions are favorable. Once the registration is complete, the company can "shelf" the securities and offer them in tranches as needed, without having to go through the full registration process each time.
For example, a company may file a shelf registration to issue up to $100 million in bonds. The company can then offer portions of this amount to investors over the next two years without having to re-file with the SEC each time.
Why is shelf registration important?
Shelf registration is important because it provides flexibility for companies to access the capital markets quickly and efficiently, without needing to re-register securities every time they want to sell them. This is particularly useful for companies that anticipate needing to raise capital at different points in time but want to avoid the delays and costs associated with multiple registration filings.
For businesses, shelf registration offers greater control over the timing of capital-raising efforts, allowing them to take advantage of favorable market conditions or respond to specific financial needs without unnecessary bureaucratic hurdles.
Understanding shelf registration through an example
Imagine a technology company that plans to raise $50 million in equity capital over the next two years to fund expansion and acquisitions. Instead of filing separate registration statements each time it wants to issue shares, the company files a shelf registration for up to $50 million in shares. Over the course of the next year, the company sells portions of the registered shares as needed, without having to repeat the filing process.
In another example, a corporation with a $200 million shelf registration might choose to issue bonds in smaller increments, depending on its funding requirements and prevailing interest rates, all under the same initial registration.
An example of a shelf registration clause
Here’s how a shelf registration clause might look in a contract:
“The Company has filed a registration statement with the SEC under the Securities Act of 1933, registering securities for sale under a shelf registration program. The Company may, from time to time and in its sole discretion, offer and sell securities registered under this shelf registration statement, without the need for re-registration, until the expiration of the registration period.”
Conclusion
Shelf registration is a useful tool for public companies that need to raise capital over time but want to avoid the delays and costs associated with repeatedly filing for securities offerings. It offers flexibility in accessing the capital markets and helps companies react swiftly to changing market conditions.
By utilizing shelf registration, businesses can streamline their capital-raising efforts, making it easier to issue new securities whenever they need additional funding while complying with SEC regulations.
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.