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 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 the company that they’ll maintain “true books and records of account” in a system of accounting based on accepted accounting systems. The also must covenant if the end of each fiscal year it will furnish each and every stockholder a balance sheet belonging to the company, revealing the financials of the such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget every year having a financial report after each fiscal three months.
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 an experienced guitarist rata share of any new offering of equity securities together with company. This means that the company must provide ample notice on the shareholders for this equity offering, and permit each shareholder a certain quantity of time exercise their specific right. Generally, 120 days is given. If after 120 days the shareholder does not exercise because their right, versus the company shall have selecting to sell the stock to more events. The Agreement should also address whether not really 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 youre able to send directors and the right to participate in in generally of any shares served by the founders equity agreement template India Online of the business (a so-called “co-sale” right). Yet generally speaking, keep in mind rights embodied in an Investors’ Rights Agreement always be right to join one’s stock with the SEC, the ideal to receive information of the company on the consistent basis, and property to purchase stock in any new issuance.