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 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 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 legal 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 from your company that they will maintain “true books and records of account” from a system of accounting consistent with accepted accounting systems. Corporation also must covenant that after 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 net income. The company will also provide, in advance, an annual budget for each year including a financial report after each fiscal quarter.
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 expert rata share of any new offering of equity securities from the company. Which means that the company must records notice towards shareholders of the equity offering, and permit each shareholder a fair bit of a person to exercise any right. Generally, 120 days is given. If after 120 days the shareholder does not exercise your right, in contrast to the company shall have alternative to sell the stock to other parties. 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, including right to elect some form of of youre able to send directors along with the right to participate in the sale of any shares created by the founders equity agreement template India Online of the company (a so-called “co-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement always be the right to sign up one’s stock with the SEC, proper way to receive information about the company on a consistent basis, and obtaining to purchase stock in any new issuance.