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 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 small business 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 your company which they will maintain “true books and records of account” in a system of accounting in step with accepted accounting systems. Corporation also must covenant if the end of each fiscal year it will furnish every single stockholder a balance sheet belonging to 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 for every year together 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 ability to purchase a pro rata share of any new offering of equity securities by the company. Which means that the company must records notice towards shareholders of the equity offering, and permit each shareholder a fair bit of with regard to you exercise any right. Generally, 120 days is given. If after 120 days the shareholder does not exercise his or her right, than the company shall have alternative to sell the stock to more events. The Agreement should also address whether or not the shareholders have the to transfer these rights of first refusal.
There as well special rights usually awarded to large venture capitalist investors, similar to the right to elect some form of of the business’ directors along with the right to participate in the sale of any shares made by the founders of organization (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement are the right to join one’s stock with the SEC, significance to receive information of the company on the consistent basis, and the right to purchase stock any kind of new issuance.