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 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 via the company which they will maintain “true books and records of account” within a system of accounting consistent with accepted accounting systems. The company also must covenant that whenever the end of each fiscal year it will furnish each and every stockholder an equilibrium sheet for the company, revealing the financials of the such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget for each year together financial report after each fiscal fraction.
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 using the company. Which means that the company must records notice into the shareholders from the equity offering, and permit each shareholder a fair bit of a person to exercise any right. Generally, 120 days is with. If after 120 days the shareholder does not exercise because their right, than the company shall have alternative to sell the stock to more events. The Agreement should also address whether or the shareholders have the to transfer these rights of first refusal.
There are also special rights usually awarded to large venture capitalist investors, similar to the right to elect several of the business’ directors as well as the right to sign up in generally of any shares made 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 would be right to join up to one’s stock with the SEC, the correct to receive information in the company on the consistent basis, and property to purchase stock any kind of new issuance.