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 although 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 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 ability 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 can maintain “true books and records of account” from a system of accounting consistent with accepted accounting systems. The also must covenant if the end of each fiscal year it will furnish each and every stockholder an account balance sheet of the company, revealing the financials of the company such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget for every year together 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 authority 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 of the equity offering, and permit each shareholder a fair bit of time to exercise their specific right. Generally, 120 days is given. If after 120 days the shareholder does not exercise your right, than the company shall have selecting to sell the stock to more events. The Agreement should also address whether or even otherwise the shareholders have the to transfer these rights of first refusal.
There will also special rights usually awarded to large venture capitalist investors, for example , right to elect an of the business’ directors and also the right to participate in manage of any shares expressed 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 always be right to join up to one’s stock with the SEC, the ideal to receive information in the company on a consistent basis, and the right to purchase stock any kind of new issuance.