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 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 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 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’ll maintain “true books and records of account” within a system of accounting in step with accepted accounting systems. The company also must covenant anytime the end of each fiscal year it will furnish every single stockholder a balance sheet for the company, revealing the financials of the such as gross revenue, losses, profit, and salary. The company will also provide, in advance, an annual budget each and every 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 authority to purchase a professional rata share of any new offering of equity securities from the company. This means that the company must provide ample notice to the shareholders for the equity offering, and permit each shareholder a certain quantity of a person to exercise his or her right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her / his right, versus the company shall have alternative to sell the stock to more events. The Agreement should also address whether or not the shareholders have a right to transfer these rights of first refusal.
There as well special rights usually awarded to large venture capitalist investors, such as the right to elect at least one of youre able to send directors and also the right to participate in in generally of any shares completed by the founders of the company (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement the actual right to sign up one’s stock with the SEC, the ideal to receive information of the company on a consistent basis, and obtaining to purchase stock in any new issuance.