Ratchet

A mechanism whereby founders and management are able to recover a portion of their equity diluted by a down round upon the achievement of certain targets on an exit.

Red Herring Prospectus

See ‘Preliminary Prospectus’.

Redemption

Repurchase by a company of its securities from an investor. Often required for preferred stock in a venture capital financing.

Registered Secondary Offering

(USA) An offering of securities by a stockholder (often an affiliate) of a company that requires an effective registration statement to be on file with the SEC before distribution may be effected.

Registered Securities

Securities issued in a form allowing the owner’s name to be imprinted on the certificate and allowing the issuer to maintain records as to the identity of the owners. Also commonly used in the USA in reference to securities that are registered under the Securities Act of 1933. See ‘Bearer Securities’.

Registrar

See 'Transfer Agent/Registrar'.

Registration

The process of filing the necessary documentation with the appropriate authorities for an offering of securities to the public, and having this registration approved or declared effective. In Europe, filing is generally made with the stock market(s) on which the stock is to be traded, as well as with the competent authorities for such filings in the home country of the stock market(s). In the USA, the registration statement is filed with the SEC, which also declares it effective. See ‘Registration Statement’.

Registration Rights

(USA) The contractual right of a stockholder to participate in the registration of the issuer’s stock for resale in the public market. See ‘Demand Registration Rights’ and ‘Piggy-back Registration Rights’.

Registration Statement

(USA) The document required by the Securities Act of 1933 to be filed with the SEC by the issuer of securities before a public offering can be made. The most frequently used registration statement forms include the following:

Form S-1
The most complete version, required for initial public offerings;

Form S-2
Intermediate version, used for public companies already registered under the Securities Exchange Act of 1934 that are up to date with their filings and with payments to security holders;

Form S-3
Short version, used for public companies already registered under the Securities Exchange Act of 1934 that meet certain additional conditions;

Form S-B2
Similar to Form S-1, but somewhat abbreviated for small business issuers; and

Form U-7
A form of registration at the state level for offerings by small businesses that are exempt at the federal level because they are below $1 million. Requires somewhat less disclosure.

Form 20-F
This is an integrated form used both as a registration statement to register securities of qualified foreign private issues under Section 12 and as an annual report under Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

Regulation A (or Reg A)

(USA) A regulation under the Securities Act of 1933 providing for a simplified form of filing with the SEC, used for certain public offerings of not more than $5,000,000 and exempting such offerings from full registration.

Regulation D (or Reg D)

(USA) A regulation under the Securities Act of 1933 that exempts limited offers and sales of securities from registration if the offering satisfies certain requirements as to the number and nature of investors and the value of the offering. Advertising and resale are restricted. In general, Rule 504 of Reg D is used for offerings of $1 million or less; Rule 505 of Reg D is used for offerings of $5 million or less, with no more than 35 purchasers who are not Accredited Investors; and Rule 506 of Reg D is used for offerings over $5 million, with no more than 35 purchasers who are not Accredited Investors, but who must be either sophisticated or represented by a Purchaser Representative. See ‘Accredited Investors’ and ‘Purchaser Representative’.

Regulation S (or Reg S)

(USA) A regulation under the Securities Act of 1933 that exempts from registration certain offers and sales of securities made outside of the United States by USA or foreign issuers.

Regulation S-K

(USA) An SEC regulation that sets forth in detail the information to be disclosed in registration statements and periodic reports of public companies.

Regulation S-X

(USA) An SEC regulation that sets forth in detail the requirements as to the form and content of financial statements used in registration statements and periodic reports of public companies.

Reporting Company

(USA) An issuer subject to the periodic reporting requirements of the Securities Exchange Act of 1934, such as the requirements to file Form 10-Ks and Form 10-Qs. A prerequisite to listing on the major exchanges in the USA is that the issuer must be a reporting company.

Reporting Company Forms (Periodic Reports)

(USA) The most common forms under the Securities Exchange Act of 1934 include the following:

Forms 3, 4, and 5
Reports to the SEC required to be made under Section 16 of the Securities Act of 1934 by directors, executive officers and certain other insiders of a public company, reporting their trades in securities of that company or its subsidiaries;

Form 6-K
The form filed with the SEC by foreign companies subject to the USA public company reporting rules for the filing of information that
(a) the company is required to make public under the laws of its jurisdiction of incorporation,
(b) it files with the securities exchange on which its securities are traded and which was made public by that exchange, or
(c) it distributes to its stockholders;

Form 8-A
The form filed with the SEC to register a company’s class of securities under the Securities Exchange Act of 1934 concurrently with a company’s registration of securities under the Securities Act of 1933;

Form 8-K
A form required to be filed with the SEC by any USA public company upon the occurrence of certain events such as a change in control of the company, significant acquisitions or dispositions of assets, bankruptcy or receivership of the company, changes in the company’s independent accountants, and certain other matters;

Form 10
A form required to be filed with the SEC to register a company’s class of securities under the Securities Exchange Act of 1934 where no other form is prescribed. Generally used when an issuer has more than 500 shareholders in the USA;

Form 10-K
A form required to be filed annually with the SEC by any public company with a class of securities registered under the Securities Exchange Act of 1934 that includes a narrative description of the business, audited financial statements, and other information;

Form 10-Q
A form required to be filed quarterly with the SEC by any public company with a class of securities registered under the Securities Exchange Act of 1934 that includes unaudited quarterly financial information and certain other information.

Representations and Warranties

Provisions in a venture capital investment agreement, underwriting agreement, or other financing document in which the company provides assurances as to the status of its business and other matters, such as the company’s capitalisation, key personnel, financial information, brokerage, ownership of properties and assets, litigation, and compliance with legal and environmental requirements.

Repurchase Agreement

An agreement in which a holder of shares agrees that the person from whom it purchased the securities may repurchase them in certain events. In venture capital rounds, founders may be required to enter into repurchase agreements in which they agree to resell their shares to the company at a fixed price in the event that they leave the company prior to a given date.

Resolution

An official document representing an action on the part of the board of directors of a corporation. Or more generally, an expression of intent to do something.

Restricted Security

(USA) A security that has not been registered under the Securities Act of 1933 and may only be resold in certain ways.

Retail Investor

A non-institutional investor who purchases securities for his or her own account.

Reverse Split or Reverse Stock Split

A decrease in the number of a company’s outstanding shares such that the proportionate equity of each shareholder remains the same. The market price per share theoretically should increase proportionately. Usually done prior to an IPO so that the offering price is consistent with similar new issues or to make a stock with a very low per-share price appear more valuable. Requires approval from the board of directors and shareholders.

Right of First Refusal

A contractual right, frequently granted to venture capitalists, to purchase shares held by other shareholders before such shares may be sold to a third party.

Right of Rescission

The right of a person to cancel or nullify a contract without penalty under certain legally prescribed circumstances.

Rights (or Rights Offering)

Usually used to refer to an option granted for a short period of time to existing stockholders to purchase additional securities on a prorata basis to their holdings. The options granted in a ‘Poison Pill’ are also referred to as rights. See ‘Warrants’, which are the longer term equivalent.

Rights Issue

In the UK, an issue on a pre-emptive basis to existing shareholders of the right to subscribe for securities in a publicly traded company at a discount to prevailing market price.

Ring

Location on the floor of an exchange where trades are executed. The circular arrangement where traders can make bid and offer prices is also called a ‘pit’, particularly when commodities are traded.

Road Show

The process during a public offering in which the management of an issuing company and the underwriters meet with groups of prospective investors to stimulate interest in an issuer. Road shows are conducted during the ‘waiting period’ shortly before the registration statement becomes effective. Road shows may take place in multiple cities and countries.

Rounds

Stages of financing of a company. A first round of financing is the initial raising of outside capital. Successive rounds may attract different types of investors as companies mature.

Rule 144

(USA) An SEC rule specifying the conditions under which a holder of unregistered securities may publicly sell them without filing a registration statement. See ‘ Rule 144 Stock’ and ‘Registration Statement’.

Rule 144 Stock

(USA) Rule 144 stock or shares are those shares of a publicly traded company that cannot be resold freely for one of two reasons: (1) the shares were acquired directly or indirectly from the issuer or an affiliate of the issuer in one or more transactions that were not registered under the Securities Act of 1933, or (2) the shares are owned by an affiliate. Rule 144 stock generally can be resold in the public markets only by complying with the requirements of Rule 144, which include certain holding periods and volume limitations. See ‘Rule 144’.

Rule 144A

(USA) An SEC rule that permits the private placement of securities to institutional investors that are qualified Institutional buyers through an underwriter or placement agent. Rule 144A securities are typically eligible for trading on PORTAL. See ‘Qualified Institutional Buyer’ and ‘PORTAL’.

Rules of Fair Practice

(USA) Rules established by NASD to protect the best interests of the securities investor.

Russell Indexes

A series of indices developed jointly by the Frank Russell Company and the New York Futures Exchange (NYFE) to represent investment-grade equities in the USA, which include the Russell 1000 Index, 2000 Index, and 3000 Index. The Russell 3000 Index tracks the 3,000 most actively traded stocks in the USA and is divided into the Russell 1000 and Russell 2000 sub-indexes. The Russell 1000 Index represents the largest companies in the USA domestic equity market, based on market capitalisation. The Russell 2000 Index represents the second tier of USA equities, or companies with market values between approximately $20 million and $300 million. See ‘Index’.