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 although 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 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 that they may maintain “true books and records of account” in a system of accounting consistent with accepted accounting systems. Supplier also must covenant anytime the end of each fiscal year it will furnish each stockholder a balance sheet from the company, revealing the financials of enterprise such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget every year and a financial report after each fiscal one fourth.
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 legal right to purchase a professional rata share of any new offering of equity securities together with company. Which means that the company must records notice into the shareholders of the equity offering, and permit each shareholder a fair bit of time to exercise their particular right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her own right, rrn comparison to the company shall have alternative to sell the stock to more events. The Agreement should also address whether or the shareholders have a right to transfer these rights of first refusal.
There will also special rights usually awarded to large venture capitalist investors, including right to elect some form of of the company’s directors and the right to participate in in the sale of any shares completed by the founders of organization (a so-called “co founders agreement india template online-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement always be the right to register one’s stock with the SEC, the ideal to receive information of the company on the consistent basis, and good to purchase stock any kind of new issuance.