What is a Registration Rights Agreement?
In the United States, shares must be registered with the SEC before they can be sold to the public. In turn, it is impossible to register shares without the company preparing a registration statement and, along with a prospectus, filing said statement with the Securities Exchange Commission. The right to register one's shares is not granted by federal or state statute, but rather, by mutual agreement between a company and investors. This article will address the key provisions that must be included in a Registration Rights Agreement.
The agreement should first address which investor or investors will receive the right to register their shares. Controlling shareholders rarely require registration rights since they can force a company to register their shares at any time. Sometimes registration rights are granted to all outside, minority investors at the same time. Other times distinctions may be drawn among groups of minority investors. If distinctions are drawn, which groups receive rights is usually determined by the price the investor pays for its shares and the number of shares it purchased. The higher the purchase price the greater the chance to receive the right to register. Likewise, the more shares one owns, the greater the chance.
The agreement should also address when the registration rights will become effective. Registration rights usually become effective immediately following the expiration of any freeze on selling a company's stock, which is usually six months following the IPO of the company's shares in the United States. On a related issue, the company will often require that a certain minimum threshold of registrable securities be registered in connection with any single registration request, so that the company is not required to go through the time and expense of a registration, which can be considerable, unless a substantial number of shares are involved. This threshold is often expressed in terms of a percentage of all outstanding registrable securities or an aggregate dollar amount based on the market price of the shares.
The agreement should address when the company may refuse to honor the rights. Many registration rights agreements allow the company to decline to honor a registration request if the disclosure of a pending corporate transaction in connection with the registration would negatively impact the company. For example, if the company is in secret negotiations to sell a major business, these negotiations might potentially need to be disclosed in the registration statement.
Finally, the issue of indemnification should be addressed in the agreement. Under U.S. securities laws, the company has strict liability for any material misstatements or omissions in a registration statement. Selling shareholders also have some liability for misstatements or omissions. Accordingly, selling shareholders typically request that the registration rights agreement contain an indemnification from the company to each selling shareholder for any liability arising from such material misstatements or omissions, other than with respect to information provided by the shareholder in writing for inclusion in the registration statement.
Many issues arising under registration rights agreements are the subject of negotiation, taking into account the investment climate at the time and the economic leverage of the investors. Investors should utilize the services of an experiences securities lawyer to draft or review the agreement and ensure their rights are being protected.
Related Tags: free, research, legal, template, contract, agreement, form, sample, registration rights agreement
Mark Warner is a Registration Rights Agreement Research Analyst for RealDealDocs.com. RealDealDocs gives you insider access to millions of legal documents online drafted by the top law firms in the US that you can download, edit and print. Search For Free at http://www.RealDealDocs.com. Your Article Search Directory : Find in Articles
Recent articles in this category:
- How to Hire a Personal Injury Attorney Toronto
There is no question that suffering from a personal injury is an incredibly difficult thing to have - Finding the Best Personal Injury Lawyer
Should you be the victim of an accident that just simply was not your fault and you have received an - DUI Perpetrators Must Seek Expert Help
It is obvious, as we progress further into the future, that behavior that puts others at risk is not - To Find the Best New York Attorney Buffalo is Still the Best Choice
If you need an attorney in New York, you would surely have a lot of options. New York has 10 cities - If You Need a Great Wisconsin Attorney Madison is the Way to Go
Are you in need of a great Wisconsin attorney? If you are from Wisconsin and need a great attorney M - What Is The Importance Of An LLP Agreement
An LLP agreement is an important contract, since without such a document the Limited Liability Partn - Personal Injury Lawyers - Get Help at Your Doorstep When Injured
As soon as you are involved in an accident, it is usually quite common for you to be injured maybe i - Personal Injury Lawyers - Knowing If You Are Entitled For a Claim
No doubts accidents do take place; however that does not mean that you should take up the liabilitie - Personal Injury Lawyers - Claiming Compensation For Your Injuries Some Tips
When you are injured, the next thing is you should know what legal rights you have; this will provid - Personal Injury Lawyers Help Victims of Car Accident Claim Financial Damages
People living in Toronto go to work through different modes of transports like trains, buses and car
Most viewed articles in this category:
- Mesothelioma Lawyer - Asbestos Attorney - Mesothelioma Lawsuits & Lung Cancer Information
Mesothelioma is one of the most tragic diseases ever to strike the working man. Due to decades of m - Michigan Personal Injury Lawyer Courts
The Michigan Courts were created by the Constitution of 1963, Article VI, and Section 1, under which - What is Entrapment?
Question: What is entrapment?Criminal Defense Lawyer: Entrapment is a defense raised by a defendan - Top 10 Tips On How To Win Your Road Traffic Accident Case
If you happen to be pursuing this thing right now then here are the top ten tips on how to win your - Agency Law
Agency Law The origins of the doctrine of necessitous intervention by someone who is in a legal rel - Procedure Of DWI In U.S.A.
ALR (Administrative License Revocation) A Program to suspend the driving license Of Drivers Which a - Mesothelioma Lawsuits Surging in United States
Mesothelioma is a cancerous disease where malignant cells develop in the lining of the chest or the - Forensic DNA Testing
Forensics is defined as the study of evidence found at a crime scene and used in a court of law. For - Arizona Drunk Driving Law, Az Drunk Driving Law & Arizona Drunk Driving Charges
Arizona drunk driving is one of the most common and deadly mistakes in Arizona while driving. Defens - Worried About the Fair Debt Collection Practices Act?
Do you work for a financial institution that collects debts? If so, do you know whether the Fair De