An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other form 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 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 coming from a company that they will maintain “true books and records of account” within a system of accounting in keeping with accepted accounting systems. The company also must covenant that after the end of each fiscal year it will furnish to each stockholder an account balance sheet belonging to the company, revealing the financials of an additional such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget for everybody year together financial report after each fiscal one fourth.
Finally, the investors will almost always want to secure a right of first refusal in the Agreement. Which means that each major investor shall have the authority to purchase an experienced guitarist rata share of any new offering of equity securities along with company. Which means that the company must records notice on the shareholders of the equity offering, and permit each shareholder a certain amount of time to exercise his or her right. Generally, 120 days is since. If after 120 days the shareholder does not exercise his or her right, rrn comparison to the company shall have picking 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 are also special rights usually awarded to large venture capitalist investors, including right to elect some form of of the business’ directors along with the right to sign up in the sale of any shares expressed by the founders equity agreement template India Online of the company (a so-called “co-sale” right). Yet generally speaking, keep in mind rights embodied in an Investors’ Rights Agreement always be right to sign up one’s stock with the SEC, the correct to receive information for the company on the consistent basis, and the right to purchase stock any kind of new issuance.