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 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 small business 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 from the company that they’ll maintain “true books and records of account” from a system of accounting based on accepted accounting systems. A lot more claims also must covenant that anytime 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 monetary. The company will also provide, in advance, an annual budget every year having a financial report after each fiscal one fourth.
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 right to purchase a professional rata share of any new offering of equity securities by the company. Which means that the company must provide ample notice towards the shareholders for the equity offering, and permit each shareholder a specific quantity of time exercise his or her right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise his or her right, than the company shall have picking to sell the stock to other parties. 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, like the right to elect at least one of the business’ directors as well as the right to sign up in the sale of any shares expressed by the founders of organization (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement are the right to join one’s stock with the SEC, the right to receive information at the company on the consistent basis, and good to purchase stock any kind of new issuance.