In such a case, the company will make all the public disclosures as it would have in case of an Initial Public Offering (IPO), however, will not issue all the securities at one time. Instead, based on the market conditions it will stagger the issue of securities over several years.
Let’s take an example to understand this. Let’s say a company files a shelf-registration statement with a prospectus to issue 10,000,000 shares. Once the registration is done, the company may decide to sell all, none, or a part of these shares. For example, it may sell 2 million shares in the first year, 3 million shares in the second year and so on. Shelf registration with a single prospectus can include offer for more than one type of security, such as stocks, bonds, convertible bonds, warrants, etc.
Before making each offer and sale, the company will have to file a short statement with SEC specifying any changes in business and finance since the shelf registration statement was filed.
By using shelf registration, companies get the flexibility in planning their capital requirements. They are also able to avoid an unfavourable market by avoiding issuing securities when the markets are down. The companies can fulfil all registration and disclosure related procedures and offer securities in the market when conditions become favourable.
In the US, shelf registration is governed by SEC Rule 415.
