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 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 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 may maintain “true books and records of account” from a system of accounting consistent with accepted accounting systems. Corporation also must covenant that whenever the end of each fiscal year it will furnish each stockholder an account balance sheet of the company, revealing the financials of supplier such as gross revenue, losses, profit, and monetary. The company will also provide, in advance, an annual budget for every year including 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 ability to purchase an expert rata share of any new offering of equity securities by the company. This means that the company must provide ample notice to the shareholders of the equity offering, and permit each shareholder a certain amount of in order to exercise any right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise your right, versus 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 as well special rights usually awarded to large venture capitalist investors, such as the right to elect several of youre able to send directors and the right to participate in generally of any shares expressed by the founders of the particular (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 sign up one’s stock with the SEC, the right to receive information about the company on a consistent basis, and obtaining to purchase stock any kind of new issuance.