An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other kind 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 Rejection.
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 small business 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 coming from a company that they may maintain “true books and records of account” within a system of accounting in step with accepted accounting systems. The also must covenant anytime the end of each fiscal year it will furnish each and every stockholder a balance sheet of the company, revealing the financials of the company such as gross revenue, losses, profit, and salary. The company will also provide, in advance, an annual budget for every year and 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. Which means that each major investor shall have the right to purchase an experienced guitarist rata share of any new offering of equity securities from the company. Which means that the company must provide ample notice on the shareholders for the equity offering, and permit each shareholder a specific quantity of in order to exercise his or her right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise his or her right, versus the company shall have a choice to sell the stock to other parties. The Agreement should also address whether or even otherwise the shareholders have the to transfer these rights of first refusal.
There as well special rights usually awarded to large venture capitalist investors, such as the right to elect at least one of the firm’s directors and the right to participate in generally of any shares made by the founders of the business (a so-called “co founders agreement india template online-sale” right). Yet generally speaking, keep in mind rights embodied in an Investors’ Rights Agreement are the right to register one’s stock with the SEC, significance to receive information at the company on a consistent basis, and proper to purchase stock any kind of new issuance.