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 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 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 in keeping with accepted accounting systems. The company also must covenant that whenever the end of each fiscal year it will furnish each stockholder an equilibrium sheet of this company, revealing the financials of enterprise such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget for everybody year and a financial report after each fiscal three months.
Finally, the investors will almost always want to secure a right of first refusal in the Agreement. This means that each major investor shall have the ability to purchase a professional rata share of any new offering of equity securities from the company. Which means that the company must records notice to the shareholders from the equity offering, and permit each shareholder a specific quantity of time to exercise their specific right. Generally, 120 days is with. If after 120 days the shareholder does not exercise her own right, than the company shall have alternative 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 are also special rights usually awarded to large venture capitalist investors, for example , right to elect several of the company’s directors and also the right to participate in the sale of any shares served by the founders of supplier (a so-called “co founders agreement india template online-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement are the right to register one’s stock with the SEC, proper way to receive information of the company on a consistent basis, and proper to purchase stock any kind of new issuance.