An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other type 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 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 your company which they will maintain “true books and records of account” in the system of accounting in line with accepted accounting systems. A lot more claims also must covenant that whenever the end of each fiscal year it will furnish to each stockholder an equilibrium sheet from 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 for everybody year having a 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 authority to purchase an expert rata share of any new offering of equity securities along with company. This means that the company must records notice towards the shareholders from the equity offering, and permit each shareholder a degree of in order to exercise any right. Generally, 120 days is with. If after 120 days the shareholder does not exercise his or her right, versus the company shall have selecting to sell the stock to other parties. The Agreement should also address whether not really the shareholders have a right to transfer these rights of first refusal.
There as well special rights usually awarded to large venture capitalist investors, similar to the right to elect one or more of the business’ directors and also the right to participate in the sale of any shares made by the founders of the particular (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, keep in mind rights embodied in an Investors’ Rights Agreement always be the right to join one’s stock with the SEC, the correct to receive information for the company on a consistent basis, and good to purchase stock in any new issuance.