An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other kind of securities. Investors’ Rights Agreements can cover several different rights awarded to the investors, depending on the agreement between the two parties. Almost always although 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 firm’s 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 via the company that they’ll 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 an equilibrium sheet of this company, revealing the financials of enterprise such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget for everybody year and a financial report after each fiscal 1 fourth.
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 ability to purchase an expert rata share of any new offering of equity securities together with company. This means that the company must records notice into the shareholders within the equity offering, and permit each shareholder a degree of with regard to you exercise as his or her right. Generally, 120 days is with. If after 120 days the shareholder does not exercise her / his right, in contrast to the company shall have the option to sell the stock to other parties. The Agreement should also address whether or not 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 an of the firm’s directors and the right to participate in manage of any shares created by the founders of the business (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement the actual right to join up one’s stock with the SEC, proper way to receive information of the company on a consistent basis, and proper to purchase stock in any new issuance.