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 can maintain “true books and records of account” within a system of accounting based on accepted accounting systems. Corporation also must covenant if the end of each fiscal year it will furnish each and every stockholder an account balance sheet from the company, revealing the financials of an additional such as gross revenue, losses, profit, and monetary. The company will also provide, in advance, an annual budget every year together financial report after each fiscal 1 fourth.
Finally, the investors will almost always want to have a right of first refusal in the Agreement. Which means that each major investor shall have the legal right to purchase a professional rata share of any new offering of equity securities from the company. This means that the company must provide ample notice on the shareholders within the equity offering, and permit each shareholder a certain quantity of time to exercise any right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise your right, rrn comparison to the company shall have alternative to sell the stock to more events. The Agreement should also address whether or not 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 several of transmit mail directors and the right to participate in in the sale of any shares made 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 right to join up one’s stock with the SEC, the right to receive information about the company on the consistent basis, and property to purchase stock any kind of new issuance.