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 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 from the company that they can maintain “true books and records of account” within a system of accounting in line with accepted accounting systems. The company also must covenant that anytime the end of each fiscal year it will furnish each stockholder a balance sheet of this company, revealing the financials of the company such as gross revenue, losses, profit, and salary. The company will also provide, in advance, an annual budget each and every year using a financial report after each fiscal fraction.
Finally, the investors will almost always want to have a right of first refusal in the Agreement. This means that each major investor shall have the legal right to purchase a professional rata share of any new offering of equity securities together with company. This means that the company must records notice to the shareholders of the equity offering, and permit each shareholder a fair bit of with regard to you exercise his or her right. Generally, 120 days is with. If after 120 days the shareholder does not exercise her / his right, rrn comparison to the company shall have alternative to sell the stock to other parties. The Agreement should also address whether not really the shareholders have the to transfer these rights of first refusal.
There are also special rights usually awarded to large venture capitalist investors, such as the right to elect one or more of the company’s directors and the right to participate in manage of any shares created by the founders of the particular (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement always be the right to join up one’s stock with the SEC, proper way to receive information for the company on the consistent basis, and obtaining to purchase stock in any new issuance.