Posted in Finance, Accounting and Economics Terms, Total Reads: 51
Definition: Registration Right
Registration Right, Also known as “Demand Registration Rights “, provides a legal authority to the investor who holds the registered stocks of a company to force that company to issue the shares in the primary market so that the investors can get more trading opportunities and can make their stocks more liquid. They can force a company to undertake IPO process and can convert any privately owned company to a publicly listed company.
This can lead to a disaster for any company as it can make the company:
• Lose some part of its ownership when it comes to public.
• due to pressure by investors
• Coming under the pressure of such investors and entering into market with IPO at wrong time can led to a failed IPO or losing stock value.
• Diverting management from handling business activities to tackling such situation.
• Even it can create a wrong image of the company in the market and let it lose its reputation and can affect its business.
But normally company doesn’t allow such type of situation to come up by coming up with following provisions:
• Limiting the registration rights allotted to the investors so that investors don’t have the majority of rights to exercise the IPO.
• Fixing some specific time period after which this right can be exercised
• Fixing some minimum amount for registration
• Delay the registration for specific time period depending on the capitalization of the company and the phase of the company.
Here the investors get the registered stocks from the time they are issued by the company while there is an another form of rights also called “piggybank registration rights” under which initially the investors are provided unregistered stocks which they can convert to registered ones when the company starts registration of stocks. This decision of registration of unregistered stocks is totally in the hands of the company and not with the holders of unregistered stocks.