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Registration rights associated with preferred shares allow investors to participate in demand registration or piggyback registration for SEC registration of specific shares. This is crucial because investors in startups often cannot sell or trade their shares immediately due to restrictions under SEC regulations, specifically Rule 144, which mandates a holding period to comply with registration exemptions. Companies typically prefer not to register securities to avoid the costs and obligations of public sale, leading to restricted shares for a certain duration. Thus, registration rights provide investors a means to eventually liquidate their investments despite initial restrictions.
