Piggyback Rights . . .

are contractual rights that entitle investors to register and sell their shares of company stock whenever the company conducts a public offering. Unlike demand rights, piggyback rights do not entitle investors to require a company to conduct a public offering but, rather, allow them to include shares in a registration that is initiated by the company.

Piggyback rights usually appear as provisions in a financing agreement, an investor rights agreement or a registration rights agreement. Piggyback rights are common in venture financings. Because share registration is often necessary to permit the sale of stock to the public, registration rights give investors a way to cash out all or a part of their investment. Most venture capitalists insist on them as a condition to providing funding.

Piggyback rights should be evidenced in a written agreement to be sure an underwriter will honor them. If management wants piggyback rights, these too should be reflected in a written agreement. Except for certain fees required by various state securities law administrators to be shared by all selling shareholders, companies usually bear the cost of investors exercising piggyback rights. See: Cashing Out (or In), Demand Rights, Exits, Registration Rights, Registration Rights Agreements, Shareholders’ Agreements.