What are Piggyback Registration rights?

Last Updated: 1 Sep 2022

Piggyback registration rights entitle investors to register their stocks when either another investor or the company initiates a registration. The type of registration rights granted with Piggyback Registration is considered inferior compared to demand registration rights as the right-holders or investors cannot initiate the registration process themselves.

The piggyback registration rights can be excluded from a public offering with a specific undertaking but it is simpler and easier to include them since the cost of adding shares with piggyback registration rights is comparatively cheaper. The reason for the disclusion of piggyback registration rights from a public offering may be due to their inferiority as compared to demand registration rights. This is especially the case when the underwriter believes that the market cannot handle all of the shares that are part of the registrations.

The cost associated with piggyback registration rights is usually borne by the company and not by the investors. Investors with piggyback registration rights also gain the additional benefit of participating in unlimited registrations, compared to investors with demanded registration rights.

How does Piggyback registration work?

Piggyback registration rights holders cannot initiate the registration process for their unregistered shares. Hence, piggyback registration rights holders have to “piggyback” on other demand registration right holding investors when they are registering their shares or register their shares when the company initiates a registration.

The items which are typically associated with the piggyback registration rights provision include:

• The ability of underwriters to cut back investor shares in an offering
• The priority of investor shares to be included in an offering
• Whether founders and management can also have piggyback registration rights

Demand registration vs Piggyback registration

Demand registration allows shareholders to demand that a company undergo an IPO, whereas investors relying on piggyback registration do not share that right of pushing a company to undertake an IPO. They must instead wait for the IPO to be demanded by other investors and thus “piggyback” on other investors’ demand registration rights.

When considering the timing of the registration, piggyback registration rights holders may be a major influence over a company’s management as it is much cheaper as compared to demand registration and hence, also occurs at a much more frequent rate.