Piggyback registration rights entitle investors to register their shares of common stock whenever the company conducts a public offering, subject to certain exceptions. Unlike demand rights, piggyback rights do not entitle investors to require a company to conduct a public offering but simply allow them to include shares in a registration that is initiated by the company. Piggyback registration rights typically are not particularly disruptive (other than the effort involved in contact investors with piggyback right to solicit their participation in a registration) and do not require the special effort of demand registrations. Companies usually bear the cost of investors exercising piggyback rights.
The items typically negotiated in the piggyback registration rights provision include:
- The ability of underwriters to cutback investor shares in an offering. Typically, the piggyback registration rights provisions allows underwriters to completely eliminate investors as selling shareholders in an IPO. In subsequent offerings, the investors will typically negotiate that they cannot be cutback to less than 25% or 30% of the offering.
- The priority of investor shares to be included in an offering. Some venture funds aggressively negotiate the priority of any shares that the underwriters allow to be registered in a company-initiated registration. An aggressive later investor may request that their shares be included in a registration before any other non-company shares are included in the registration.
- Whether founders and management can also have piggyback registration rights. Savvy founders will argue to obtain piggyback registration rights for the same reason that venture funds want the rights. Absent registration, founders that are affiliates will need to comply with volume restrictions under Rule 144. A registered public offering may be one of the few orderly ways that a founder can sell a large number of shares.