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 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 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 through company that they can maintain “true books and records of account” in the system of accounting in step with accepted accounting systems. A lot more claims also must covenant that after the end of each fiscal year it will furnish every single stockholder a balance sheet belonging to the company, revealing the financials of an additional such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget for every year including a financial report after each fiscal three months.
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 authority to purchase an expert rata share of any new offering of equity securities along with company. This means that the company must records notice to the shareholders within the equity offering, and permit each shareholder a degree of time exercise their specific right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her own right, than the company shall have selecting to sell the stock to other parties. The Agreement should also address whether or even otherwise the shareholders have a right to transfer these rights of first refusal.
There furthermore special rights usually awarded to large venture capitalist investors, such as the right to elect at least one of transmit mail directors and the right to participate in manage of any shares created by the founders equity agreement template India Online of the business (a so-called “co-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement always be right to join up one’s stock with the SEC, the ideal to receive information of the company on a consistent basis, and good to purchase stock any kind of new issuance.