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 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 firm’s 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 legal 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 which they will maintain “true books and records of account” in the system of accounting in step with accepted accounting systems. The also must covenant that anytime the end of each fiscal year it will furnish to every stockholder an equilibrium sheet belonging to 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 everybody year including a financial report after each fiscal 1 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 a pro rata share of any new offering of equity securities from the company. Which means that the company must records notice towards shareholders of the equity offering, and permit each shareholder a fair bit of time to exercise as his or her right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her / his right, rrn comparison to the company shall have a choice to sell the stock to more events. The Agreement should also address whether or not 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 one or more of the firm’s directors and the right to participate in in selling of any shares completed by the founders of supplier (a so-called “co founders agreement india template online-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement the actual right to register 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.