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 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 through company that they can maintain “true books and records of account” in a system of accounting based on accepted accounting systems. Supplier also must covenant that whenever the end of each fiscal year it will furnish every single stockholder a balance sheet of the company, revealing the financials of the company such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget for everybody year having 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 authority 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 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 her own right, n comparison to the company shall have alternative 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, for example , right to elect several 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, remember rights embodied in an Investors’ Rights Agreement would be right to join up one’s stock with the SEC, significance to receive information for the company on a consistent basis, and obtaining to purchase stock in any new issuance.