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 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 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 the company that they will maintain “true books and records of account” in a system of accounting based on accepted accounting systems. A lot more claims also must covenant that after the end of each fiscal year it will furnish each stockholder an account balance sheet of this company, revealing the financials of the company such as gross revenue, losses, profit, and monetary. The company will also provide, in advance, an annual budget each and every year including a financial report after each fiscal one fourth.
Finally, the investors will almost always want to have a right of first refusal in the Agreement. Which means that each major investor shall have the right to purchase an experienced guitarist rata share of any new offering of equity securities along with company. This means that the company must records notice towards the shareholders of the equity offering, and permit each shareholder a degree of a person to exercise any right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise her / his right, n comparison to 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 an of the company’s directors as well as the right to participate in selling of any shares expressed by the founders equity agreement template India Online of the business (a so-called “co-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement always be the right to register one’s stock with the SEC, the correct to receive information in the company on the consistent basis, and obtaining to purchase stock any kind of new issuance.