An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other type 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 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 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 via the company that they may maintain “true books and records of account” in a system of accounting based on accepted accounting systems. The company also must covenant anytime the end of each fiscal year it will furnish to each stockholder an equilibrium 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 for everybody year having a financial report after each fiscal 1 fourth.
Finally, the investors will almost always want to have a right of first refusal in the Agreement. This means that each major investor shall have the authority to purchase a pro rata share of any new offering of equity securities by the company. This means that the company must records notice on the shareholders within the equity offering, and permit each shareholder a specific quantity of with regard to you exercise their specific right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise her own right, than the company shall have picking to sell the stock to other parties. The Agreement should also address whether not really the shareholders have the to transfer these rights of first refusal.
There likewise special rights usually awarded to large venture capitalist investors, for example , right to elect one or more of the company’s directors and the right to participate in in selling of any shares served by the founders equity agreement template India Online of the particular (a so-called “co-sale” right). Yet generally speaking, keep in mind rights embodied in an Investors’ Rights Agreement would be right to join one’s stock with the SEC, proper way to receive information of the company on the consistent basis, and proper to purchase stock in any new issuance.