An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other way of securities. Investors’ Rights Agreements can cover several different rights awarded to the investors, depending on the agreement between the two parties. Almost always though the agreement will cover three basic investors’ rights: Registration rights, Information Rights, and Rights of First Rejection.
Registration Rights are contractual rights of holders of securities to have the transfer of those securities registered with the SEC under the Securities Act of 1933. In other words, Registration Rights entitle investors to force a professional to register shares of common stock issuable upon conversion of preferred stock with the Securities and Exchange Commission. A venture capitalist shareholder especially wants the ability to register his shares because registration provides it with the authority to freely sell the shares without complying with the restrictions of Rule 144.
In any solid Investors’ Rights Agreement, the investors will also secure a promise through company which they will maintain “true books and records of account” within a system of accounting in step with accepted accounting systems. The company also must covenant that after the end of each fiscal year it will furnish each stockholder an account balance sheet belonging to the company, revealing the financials of the such as gross revenue, losses, profit, and monetary. The company will also provide, in advance, an annual budget for everybody year including a financial report after each fiscal quarter.
Finally, the investors will almost always want to secure a right of first refusal in the Agreement. This means that each major investor shall have the ability to purchase a professional rata share of any new offering of equity securities using the company. This means that the company must provide ample notice on the shareholders for this equity offering, and permit each shareholder a degree of time to exercise as his or her right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise his or her right, n comparison to the company shall have selecting to sell the stock to more events. The Agreement should also address whether or even otherwise the shareholders have the to transfer these rights of first refusal.
There are also special rights usually awarded to large venture capitalist investors, like the right to elect one or more of the company’s directors along with the right to participate in generally of any shares created by the founders of the particular (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement are the right to register one’s stock with the SEC, the correct to receive information of the company on a consistent basis, and obtaining to purchase stock any kind of new issuance.