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 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 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 ability 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 your company which they will maintain “true books and records of account” from a system of accounting consistent with accepted accounting systems. A lot more claims also must covenant that whenever the end of each fiscal year it will furnish to every stockholder an account balance sheet belonging to the company, revealing the financials of supplier such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget for every year and a financial report after each fiscal one 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 experienced guitarist rata share of any new offering of equity securities by the company. This means that the company must provide ample notice towards the shareholders for the equity offering, and permit each shareholder a fair bit of in order to exercise as 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 a choice 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 as well special rights usually awarded to large venture capitalist investors, such as the right to elect several of the firm’s directors as well as the right to participate in in generally of any shares created by the founders of supplier (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement would be right to join up one’s stock with the SEC, proper way to receive information in the company on a consistent basis, and the right to purchase stock in any new issuance.