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Exit strategy is perhaps the most important item on any private equity investor's checklist. Many investors, particularly in new economy investments, look to a US listing (often on Nasdaq) for this exit.

But simply getting the initial listing of the target company in the US is only half the battle. The investor must also be able to register its shares for sale to the public after the initial public offering (IPO), and this registration cannot occur without the cooperation of the company. Rights to force the company to cooperate in the registration process - commonly known as registration rights - are integral to an investor's exit strategy in the US public markets. These rights are also called demand registration rights, to distinguish them from piggyback registration rights described later.

To understand the importance of registration rights to investors in a US public company, a bit of background on US securities laws is necessary. The United States is one of the few jurisdictions in the world where shares must be registered (or where an exemption from registration must be available) before the shares are sold to the public. The shares are registered under a registration statement, which includes a prospectus, which is filed with the US Securities and Exchange Commission. The company prepares, and must stand behind, the registration statement, and accordingly it is impossible to register shares without the cooperation of the company. Investors should also note that shares cannot be registered and held; only shares to be sold can be registered. Registration rights are not provided by statute. They can only be granted in a registration rights agreement between the company or the controlling shareholders, on the one hand, and the investors to be granted these rights on the other. (These agreements may also be called investor rights agreements...