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 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 the company which they will maintain “true books and records of account” from a system of accounting based on accepted accounting systems. The also must covenant if the end of each fiscal year it will furnish every single stockholder an account balance sheet from the company, revealing the financials of supplier such as gross revenue, losses, profit, and salary. The company will also provide, in advance, an annual budget for every year using a financial report after each fiscal three months.
Finally, the investors will almost always want to have a right of first refusal in the Agreement. This means that each major investor shall have the right to purchase an experienced guitarist rata share of any new offering of equity securities by the company. This means that the company must records notice to the shareholders for the equity offering, and permit each shareholder a certain amount of with regard to you exercise their specific right. Generally, 120 days is handed. 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 even otherwise the shareholders have the to transfer these rights of first refusal.
There likewise special rights usually awarded to large venture capitalist investors, similar to the right to elect some form of of the firm’s directors and the right to sign up in generally of any shares served by the founders of organization (a so-called “co founders agreement india template online-sale” right). Yet generally speaking, keep in mind rights embodied in an Investors’ Rights Agreement the actual right to join up to one’s stock with the SEC, the ideal to receive information at the company on a consistent basis, and property to purchase stock in any new issuance.