Piggyback Registration - Explained
What is Piggyback Registration?
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Table of ContentsWhat is Piggyback Registration?How does Piggyback Registration Work? Piggyback Registration Rights vs Demand Registration RightsAcademic Research on Piggyback Registration
What is Piggyback Registration?
The process of Piggyback registration in business takes place when a company or an individual (underwriter) allows the sale existing organizational shares in conjunction with a novel public offering. An underwriter allows offering a new issue of stock in conjunction with old issued shares. The process of registration requires the permission of concerned underwriter. It is to note that piggyback registration is a different process from piggybacking.
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How does Piggyback Registration Work?
The piggyback registration process binds an underwriter (an individual persona or a company) to sign off on the form to begin the process. All types of arrangements are mentioned in a new issue that produces all the information of sellers who sell private shares. Piggyback registration is also known as consolidating and it permits joint ventures to take part in the first public offering.
Piggyback registration is initiated in a typical manner as it allows an underwriter to make a reduction in the number of shares of an investor during the due process of offering. Most often these rights provisions permit underwriters to wholly eliminate the role of investors as they are known as selling shareholders during the first public offering. In subsequent offerings (following time or order) a guarantee is issued to investors that their share in the offering will not decrease from 25 to 30 percent.
The other provision stands as a priority level concerned with an investors shares that become the part of an offering. For instance, a venture fund sets the terms and condition for the priority related to shares on the basis of permission from the underwriter. These negotiated priorities are registered in a registration form initiated by the company. Due to similar reasons, the management and founders of an organization are allowed to make negotiation if hey hold piggyback registration rights.
Piggyback Registration Rights vs Demand Registration Rights
There is a great difference between PRR (Piggyback Registration Rights) and DRR known as Demand Registration Rights. The role of PRR is believed as inferior to Demand Registration Rights due to two primary reasons. The first reason indicates that investors are not allowed to begin the registration process. Even those investors who hold piggyback registration rights have no control over the timing.
The second reason is concerned with sold shares (under piggyback) status as they are considered inferior. These are some of the reasons that traders exclude piggyback registration rights from offerings. In contrast, shares that are favored, come under (DDR) demand registration rights. Demand registration rights (DRR) grant investors certain rights or powers to demand an organization for the registration of its shares to sell them to the public. It is because investors are the actual owners of these shares.
The registration must take place even the organization does not consider issuing securities in favor of the public within the given time. There is one confirmed benefit with regard to holding piggyback registration rights; holders can take part in as many registrations as they want without any restrictions (caps). However, this is not the case with other registration rights.
Piggyback rights are used on a regular basis compared with demand registration rights. It is to note that adding shares that are associated with piggyback registration rights are low in price in terms of nominal cost for continuing registration process.
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