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What is a Shelf Registration?


As the U.S. sank into an economic downturn that was triggered by the coronavirus pandemic in 2020, many public companies scrapped their buyback programs and reduced or scrapped dividend payments.

For some companies, raising additional capital via venture capitalists or initial public offerings (IPO) also became necessary.

But initial and secondary public offerings are complex, lengthy, and expensive processes. Companies can take six months or even a year to offer their shares to investors through initial and secondary offerings.

In this blog post, we’re going to focus on shelf registration, which is a method that several publicly traded companies sometimes use to offer their securities, particularly when the existing market conditions are not favorable like during the coronavirus crisis.

What is shelf registration?

Shelf registration is a form of public offering in which certain companies/issuers are allowed to offer and sell securities to the public without a separate prospectus for each act of offering.

To put it in simple words, shelf registration is a type of offering in which a company informs investors that it could issue shares or other securities at some point within the next few years, without committing to do so.

Shelf registration was introduced by the SEC in 2005. The agency based the process on the idea that the filing statement waits “on the shelf” until the business decides to issue the stock.

This method of raising funds from the equity markets is also commonly known as shelf offering. The base prospectus typically contains general information, such as:

  • The types of securities to be offered
  • A plan of distribution
  • The use of proceeds
  • A brief summary of the issuer’s business

Which companies qualify for shelf registration?

Not all companies can file a shelf registration statement with the SEC. For a company to be eligible, it has to have:

  • Principal business operations in the United States
  • Filed all required financial results on time in the last year
  • Previously registered to offer a class of securities for sale
  • Not defaulted on lease installments, preferred stock dividends, or debt

How a shelf registration works

Shelf registrations are governed under the U.S. Securities and Exchange Commission (SEC)’s Rule 415. Companies can accomplish a shelf registration by filing a Form S-3, but this approach can only be used by larger companies.

Companies can also employ a  Form S-1 filing, but only when they plan to issue the underlying securities on an “immediate, continuous, or delayed basis,” with every sale transaction completed within the next two years.

In a shelf registration, the company will disclose all its financial and management information to the public as it would have in case of an IPO.

However, it will not issue all the securities at one go. Instead, it will spread the issue of securities over several years based on the conditions of the market.


Let’s now take an example to understand how math and numbers in a shelf registration work. Let’s say that a fictitious company ABC files a shelf registration statement with a prospectus to issue 1,000,000 shares.

Once the company has completed the registration, it may decide to sell all, none, or a part of the shares. For example, it may sell 200,000 million shares in the first year, 300,000 million shares in the second year, and so on.

But before making each offer and sale, the company has to file a short statement with SEC laying out any changes in finance and business since it filed the shelf registration statement.

It’s also worth pointing out that shelf registration with a single prospectus may include an offer for more than one form of security, such as stocks, warrants, bonds, and convertible bonds.

Shelf registration is also associated with issues of preferred stock, which has more guarantee of getting some money back in case the company is liquidated and usually offers priority treatment in receiving dividends.

Why shelf offering matters

Shelf registrations allow companies to have pre-approved securities available, which they can issue on short notice.

This type of public offering is especially important when issuing debt securities because the time period during which the market interest rate is low can be very short.

Another benefit of a shelf offering is that it gives the company more flexibility on the timing of a stock issue. This could enable it to capitalize on changes in attitudes among potential investors.

For example, stocks of social media companies may attract a very small number of buyers when there is a widespread scandal over data privacy. That could change at a later date if the companies announce major changes meant to protect users’ personal data.

Being able to issue stock quickly could capitalize on this change in the industry which temporarily attracts more people to buy social media stocks.

Therefore, once a company completes the registration procedures it can choose to issue the securities when the market is favorable. The SEC does not give the issue date, but the securities have to be issued before the expiration of the registration coverage.

A shelf offering basically allows the company to get an opportunity to offer new shares in a predetermined and organized time window.

This type of offering is also intended to facilitate a more gradual and orderly sale of shares and minimize the impact that the IPO lock-up expiration may have on the stock price of a company.

Essentially, the company is reserving the number of shares that it would like to sell. By allocating the shares, the company now has the chance to offer those shares to the investing public whenever the time is most favorable to its executives, up to three years in the future.

Securities that are not issued in a shelf offering before the shelf registration coverage expires are classified as treasury shares.

Shelf offering is also beneficial for a company that might have administrative problems it needs to take care of before it can offer new securities.

How common are shelf registrations?

Shelf registrations allow companies to have legal paperwork for raising fresh funds so they can issue shares more quickly, especially when the stock market is experiencing high prices.

According to research firm Audit Analytics, more companies have turned to shelf registrations in recent months to capitalize on high stock market valuations.

As per Audit Analytics, 56 companies had filed original shelf registrations forms with the SEC as of Jan. 27 2021, up from 44 in the same period last year.

That continued the trend of 2020, when a total of 844 original filings were made, up 37% from 2019. The shelf registration filings for 2020 and the beginning of 2021 were both the highest in at least a decade.

Bottom Line

Capital markets have been extremely volatile of late and this trend is likely to continue. For the foreseeable future, any opportunity to access the capital markets is likely to be brief.

Many companies may find themselves needing to access the capital markets much soon than they initially expected during challenging times.

Therefore, in order to better position themselves for such an opportunity, public companies should consider having an effective shelf registration statement on file with the SEC.

Having such a statement could mean the difference between gaining and missing out on access to that critical window of opportunity.