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 that they can maintain “true books and records of account” in a system of accounting in keeping with accepted accounting systems. The company also must covenant anytime the end of each fiscal year it will furnish every single stockholder an account balance sheet of the company, revealing the financials of the company such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget each and every year having a financial report after each fiscal fraction.
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 a professional rata share of any new offering of equity securities by the company. This means that the company must records notice into the shareholders from the equity offering, and permit each shareholder a specific quantity of with regard to you exercise their specific right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise his or her right, rrn comparison to the company shall have the option to sell the stock to more events. The Agreement should also address whether or even otherwise the shareholders have the to transfer these rights of first refusal.
There furthermore special rights usually awarded to large venture capitalist investors, including right to elect an of the company’s directors as well as the right to sign up in selling of any shares made by the founders of organization (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 register one’s stock with the SEC, proper way to receive information at the company on a consistent basis, and the right to purchase stock in any new issuance.