An S-3 registration entitles investors to demand that a company register their shares on a Form S-3 registration statement. Form S-3 is a shorter form of registration statement than a Form S-1 (used in an IPO) and may be used by a company one year after an IPO. Form S-3 requires less effort by a company than a Form S-1 because the company is allowed to refer to certain items contained in its other SEC filings.
The items typically negotiated in the S-3 registration rights provision include:
- The number of S-3 registrations. Typically, the company may want to limit the number to a one or two in any twelve month period and the investors will want unlimited S-3 registrations. There are legal and accounting expenses associated with an S-3 registration, which the company will want to limit.
- The minimum size of an S-3 registration. The company will want the amount of securities to be registered to be greater than a certain dollar amount, such as $1 million, in order to avoid frivolous registration requests.