Investors’ right to demand the Company register shares of common stock with the Securities and Exchange Commission (“SEC”) in an IPO. That way, the Investors can sell all or part of their investment to the public. If a Company wasn’t public already, a demand registration would make it so.
There are often three main requirements for Investors before they can make a demand registration and gives a range of reasonable timing and minimum price:
- Timing: A demand can only be made if 3-5 years have passed after signing of the Investors’ Rights Agreement, or 6 months after the Company has an IPO. Whichever comes earlier.
- Approval threshold: A demand can only be made if requested by holders of a certain percentage of Registerable Securities (usually a majority).
- Minimum price: A demand can only be made if the total amount of stock sold in the IPO is $5-15 million.
Other terms could be agreed upon before demand registration is permitted. Some common terms, including how many shares an Investor can demand to be registered, a minimum value that the Common Stock must be before demanding registration, who pays the registration fees, and best-efforts clauses that the Company will fulfill a demand promptly.
Term Sheet Language: Upon earliest of (i) [three (3)-five (5)] years after the Closing; or (ii) [six (6)] months following an initial public offering (“IPO”), persons holding [__]% of the Registrable Securities may request [one][two] (consummated) registrations by the Company of their shares. The aggregate offering price for such registration may not be less than $[5-15] million. A registration will count for this purpose only if (i) all Registrable Securities requested to be registered are registered, and (ii) it is closed, or withdrawn at the request of the Investors (other than as a result of a material adverse change to the Company).