You create an app that tracks people's adverb usage and gives them a little shock when they overuse them. (You distinctly hate when people grossly, aggressively drop unnecessary adverbs into sentences.) Your app draws a lot of investor interest. One fund, Grammar Champ LLC, gives you a $100,000 investment. In return, they get 25% of the company.
After a while, the people at Grammar Champ want you to take the company public. Things have been going well, and they've determined that an IPO is the best way for them to extract value from their investment. However...you don't want to. What's more, you still own 75% of the company, so you get the final say on what happens.
Except...when you sold the investment to Grammar Champ, you gave them registration rights. This stipulation gives the investor (even a minority investor) the right to force the firm to take the shares public. That way, Grammar Champ can sell the stock to the public and cash in on its investment.
After all, the end game of early investments often comes down to an initial public offering. People who put money into a speculative venture can use the IPO to unlock a return from their early stock purchase. But the decision to go public might be out of an investor's hands. If they only hold a minority position, they have to wait until the major investors are on board with the decision to sell stock to the public. However, if they negotiate a registration right, they can require the firm to list the shares on a public exchange, register them with the SEC, and conduct an IPO.
Related or Semi-related Video
Finance: What is a registration statemen...2 Views
finance a la shmoop what is a registration statement....Hi I'm a
registration statement okay there I said [Uncle Sam poster talking]
it that's a registration statement alright
what am I good for well if you want to go public that is raise money from Joe [Joe Sixpack and Josephine Sixpack appear]
Sixpack and his wife Josephine well then you have to jump through all kinds of
hoops the most important of which is that you have to file a prospectus with
the Securities Exchange Commission or SEC all right what's a prospectus[Prospectus with SEC badge]
it used to be an amateur spectus but the well then it took some continuing ed
classes owned expecting skills and it turned pro and took money all
right well a prospectus basically just outlines all of the information that the
SEC deems is key to the offering like trailing revenues and profits and growth
the units sold, any lawsuits outstanding against the company, distribution,
contracts with vendors patents who the management is debts owed and on and on [examples of what is outlined in a prospectus]
why the need for all this registration well because so many unsuspecting
investors who likely didn't watch this video well they got taken taken in the [Person picks up red phone]
past yeah farmers, not educated government came to their aid they
invested in some sleazy thing that wasn't run through the SEC and now
they're walking around in a barrel saying we'll uh shmoop for food yeah [Man walking in a barrel]
good luck you know the phrase a barrel of fun yeah this is not what it's
referring to [Man walking inside a barrel and a tiger appears]
Up Next
What is reg G? No, it's not an up-and-coming rap star...though we know what our rapper name is now. Hit play to find out.
A shelf registration is a kind of public offering where banks and other institutions can offer new securities in companies without going through an...