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 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 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 coming from a company that they may maintain “true books and records of account” in the system of accounting consistent with accepted accounting systems. Corporation also must covenant that after the end of each fiscal year it will furnish each stockholder a balance sheet belonging to the company, revealing the financials of enterprise such as gross revenue, losses, profit, and monetary. The company will also provide, in advance, an annual budget each and every year having a financial report after each fiscal one fourth.
Finally, the investors will almost always want to secure a right of first refusal in the Agreement. Which means that each major investor shall have the authority to purchase a professional rata share of any new offering of equity securities using the company. This means that the company must records notice into the shareholders from the equity offering, and permit each shareholder a degree of time exercise their particular right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her own right, versus the company shall have selecting to sell the stock to other parties. 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, such as the right to elect an of the firm’s directors along with the right to participate in generally of any shares created by the founders of the business (a so-called “co founders agreement india template online-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement always be right to register one’s stock with the SEC, significance to receive information about the company on a consistent basis, and good to purchase stock in any new issuance.