An Investors' Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company's stock or other way 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 Refusal.
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 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 the company that they can maintain "true books and records of account" within a system of accounting in keeping with accepted accounting systems. The also must covenant if the end of each fiscal year it will furnish each stockholder a balance sheet for the company, revealing the financials of the company such as gross revenue, losses, profit, and monetary. The company will also provide, in advance, an annual budget for each year having a financial report after each fiscal 1 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 authority to purchase a pro rata share of any new offering of equity securities together with company. This means that the company must records notice towards shareholders within the equity offering, and permit each shareholder a certain amount of time to exercise any right. Generally, 120 days is since. If after 120 days the shareholder does not exercise his or her right, in contrast to 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, for example , right to elect at least one of the company's directors and also the right to participate in in manage of any shares served by the founders of the business (a so-called "co founder agreement sample online India-sale" right). Yet generally speaking, remember rights embodied in an Investors' Rights Agreement the actual right to join one's stock with the SEC, the ideal to receive information about the company on a consistent basis, and obtaining to purchase stock any kind of new issuance.