An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other form 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 Refusal.
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 company 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 legal right 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 coming from a company that they will maintain “true books and records of account” from a system of accounting in line with accepted accounting systems. The also must covenant anytime the end of each fiscal year it will furnish to every stockholder a balance sheet belonging to the company, revealing the financials of an additional such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget each and every year and a financial report after each fiscal fraction.
Finally, the investors will almost always want to have a right of first refusal in the Agreement. Which means that each major investor shall have the right to purchase a pro rata share of any new offering of equity securities from the company. This means that the company must records notice towards shareholders from the equity offering, and permit each shareholder a certain quantity of a person to exercise any right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise because their right, rrn comparison to the company shall have a choice 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 will also special rights usually awarded to large venture capitalist investors, such as the right to elect some form of of the company’s directors as well as the right to participate in in generally of any shares expressed by the founders of supplier (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, keep in mind rights embodied in an Investors’ Rights Agreement are the right to join up to one’s stock with the SEC, proper way to receive information of the company on a consistent basis, and property to purchase stock in any new issuance.