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 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 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 via the company which they will maintain “true books and records of account” within a system of accounting based on accepted accounting systems. Supplier also must covenant that after the end of each fiscal year it will furnish each and every stockholder an account balance sheet belonging to the company, revealing the financials of enterprise such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget for each year having a 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 legal right to purchase a pro rata share of any new offering of equity securities by the company. Which means that the company must records notice to the shareholders within the equity offering, and permit each shareholder a specific quantity of with regard to you exercise any right. Generally, 120 days is since. If after 120 days the shareholder does not exercise her own right, versus the company shall have picking to sell the stock to other parties. The Agreement should also address whether or even otherwise the shareholders have a right to transfer these rights of first refusal.
There likewise special rights usually awarded to large venture capitalist investors, including right to elect one or more of the business’ directors along with the right to participate in selling of any shares created by the founders of supplier (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement would be right to sign up one’s stock with the SEC, the correct to receive information for the company on a consistent basis, and the right to purchase stock in any new issuance.