Business, Legal & Accounting Glossary
A contract that entitles a shareholder to force a company to register his/her shares for later sale to the public.
Demand Rights are contractual agreements that entitle an investor to force a company to register his shares of company stock so that he can sell them to the public. Demand rights are often contrasted with piggyback rights, which allow an investor to include his shares of stock in a public offering that the company voluntarily conducts for its own benefit.
Most venture capitalists require companies to grant them demand rights as a condition to their investing. Demand rights enable the investor to liquidate his investment by forcing the company to register his shares for sale to the public. This registration process, however, is expensive and time-consuming. And a public sale at the wrong time can reduce the future value of a company’s shares. Because this can increase a company’s cost of raising equity in the future, the number of demand rights granted and the conditions under which they can be exercised are usually heavily negotiated issues.
The outcome of those negotiations can seriously affect the value of a funding and the future success of a company. Among the points management frequently seeks to obtain in negotiations over demand rights are:
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This glossary post was last updated: 30th December, 2021 | 0 Views.