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 professional 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 via the company which they will maintain “true books and records of account” within a system of accounting in step with accepted accounting systems. Corporation also must covenant that after the end of each fiscal year it will furnish to each stockholder an account balance sheet for the company, revealing the financials of enterprise such as gross revenue, losses, profit, and salary. The company will also provide, in advance, an annual budget for every year having a financial report after each fiscal quarter.
Finally, the investors will almost always want to have a right of first refusal in the Agreement. This means that each major investor shall have the legal right to purchase an experienced guitarist rata share of any new offering of equity securities from the company. This means that the company must records notice to the shareholders for this equity offering, and permit each shareholder a fair bit of with regard to you exercise their specific right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise because their right, than the company shall have a choice to sell the stock to more events. The Agreement should also address whether or even otherwise the shareholders have a right to transfer these rights of first refusal.
There are also special rights usually awarded to large venture capitalist investors, for example , right to elect several of the company’s directors and the right to sign up in manage of any shares completed by the founders of organization (a so-called “Co Founder Collaboration Agreement India-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement always be the right to sign up one’s stock with the SEC, significance to receive information of the company on the consistent basis, and property to purchase stock in any new issuance.