An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other involving 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 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 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 your company that they may maintain “true books and records of account” in the system of accounting in line with accepted accounting systems. A lot more claims also must covenant if the end of each fiscal year it will furnish every single stockholder an equilibrium sheet for the company, revealing the financials of enterprise such as gross revenue, losses, profit, and salary. The company will also provide, in advance, an annual budget for everybody year and a financial report after each fiscal quarter.
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 right to purchase a pro rata share of any new offering of equity securities from the company. This means that the company must provide ample notice on the shareholders from the equity offering, and permit each shareholder a certain amount of a person to exercise any right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise his or her right, versus the company shall have a choice to sell the stock to other parties. The Agreement should also address whether or the shareholders have the to transfer these rights of first refusal.
There are also special rights usually awarded to large venture capitalist investors, like the right to elect some form of of the firm’s directors along with the right to sign up in the sale of any shares served by the founders of the company (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, keep in mind rights embodied in an Investors’ Rights Agreement the actual right to sign up one’s stock with the SEC, the ideal to receive information in the company on the consistent basis, and good to purchase stock any kind of new issuance.