Key Highlights

• A form of registration rights enabling investors to register their unregistered shares in a public offering is the Piggyback Registration Rights.
• While piggyback registration rights are easily added to shares since subscribing to shares with these rights is comparatively less expensive, an underwriter may choose to exclude them from a public offering.
• Since this group of rights holders is unable to initiate the registration procedure, Piggyback Rights are seen as inferior to demand registrations.

Piggyback Registration Rights Meaning

When another investor or a company applies for registration, the Piggyback Rights allow investors to register their shares. Given that rights holders or investors are unable to initiate a registration process on their own, the kind of registration rights granted by Piggyback Registration is regarded as not being sufficiently high compared with demand registrations.

The piggyback registration rights may not be included in a public offering with a specific undertaking. Still, it is simpler and easier to have them since the cost of adding shares with piggyback registration rights is relatively low. In comparison to demand registration rights, the reason for the exclusion of piggyback registration rights from the public offering may be due to their inferiority. This is particularly the case where the underwriter considers that the market is not capable of handling all of the shares included in the registration.

The company is usually the one who bears the costs of piggyback registration rights, not the investors. In comparison with the investors requiring registration rights, piggyback holders also enjoy the additional benefit of participating in unrestricted registrations.

How Does Piggyback Registration Work?

The holder of the piggyback registration rights may not initiate the registration process for unregistered shares. Therefore, in order to register their shares when the company starts a registration process, holders of piggyback registration rights must "piggyback" on investors who have demanded registration rights. The following items are typically associated with piggyback registration rights.

1. The possibility of underwriters reducing the number of investor shares in an offering.
2. The priority of investor shares to be included in the offering.
3. Whether there is also a right to piggyback on registration rights for founders and management.

Demand Registrations Vs Piggyback Registration

Demand registration allows shareholders to demand an initial public offering, whereas investors relying on piggyback registration do not share that right to demand an initial public offering. They are forced to "piggyback" on other investors' demand for registration rights by waiting for other investors to seek the IPO.

With regard to the timing of registration, piggyback rights holders could have a substantial impact on company governance as they are much less expensive than demand registrations. Thus, this also occurs far more frequently.

Conclusion

When it comes to the timing of a company's registration, piggyback rights holders also have considerable influence over its management. The use of piggyback rights is also much more frequent than demand registration rights as the addition of shares related to piggyback registrations, which are relatively cheaper compared with those relating to an ongoing registration process, constitutes a significantly lower marginal cost.