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 from the company that they may maintain “true books and records of account” in the system of accounting consistent with accepted accounting systems. The company also must covenant that whenever the end of each fiscal year it will furnish to each stockholder an equilibrium sheet belonging to the company, revealing the financials of supplier such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget each and every year together financial report after each fiscal three months.
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 legal right to purchase an expert rata share of any new offering of equity securities using the company. Which means that the company must provide ample notice towards shareholders for the equity offering, and permit each shareholder a degree of in order to exercise their specific right. Generally, 120 days is since. If after 120 days the shareholder does not exercise your right, than the company shall have picking to sell the stock to other parties. The Agreement should also address whether or not the shareholders have the to transfer these rights of first refusal.
There will also special rights usually awarded to large venture capitalist investors, for example , right to elect several of transmit mail directors along with the right to participate in selling of any shares expressed by the founders of the business (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement are the right to join one’s stock with the SEC, the right to receive information at the company on a consistent basis, and property to purchase stock in any new issuance.