An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other form 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 professional 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 from the company that they may maintain “true books and records of account” within a system of accounting in keeping with accepted accounting systems. Supplier also must covenant if the end of each fiscal year it will furnish each stockholder an account balance sheet of this company, revealing the financials of an additional such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget for everybody year using a financial report after each fiscal fraction.
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 ability to purchase a pro rata share of any new offering of equity securities using the company. This means that the company must provide ample notice into the shareholders of the equity offering, and permit each shareholder a fair bit of time to exercise his or her right. Generally, 120 days is since. If after 120 days the shareholder does not exercise his or her right, versus the company shall have selecting to sell the stock to more events. The Agreement should also address whether or even otherwise the shareholders have a right to transfer these rights of first refusal.
There will also special rights usually awarded to large venture capitalist investors, like the right to elect at least one of the company’s directors as well as the right to sign up in the sale of any shares served by the founders of supplier (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement would be right to join up one’s stock with the SEC, the ideal to receive information for the company on a consistent basis, and property to purchase stock in any new issuance.