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 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 from the company that they'll maintain "true books and records of account" in a system of accounting based on accepted accounting systems. A lot more claims also must covenant anytime the end of each fiscal year it will furnish every single stockholder an equilibrium sheet of the company, revealing the financials of supplier such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget for every year and a financial report after each fiscal one 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 authority to purchase an expert rata share of any new offering of equity securities along with company. This means that the company must records notice to the shareholders for the equity offering, and permit each shareholder a specific quantity of time exercise their specific right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise her own right, n comparison to the company shall have the option 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 furthermore special rights usually awarded to large venture capitalist investors, for example , right to elect some form of of transmit mail directors as well as the right to participate in in selling of any shares completed by the founders of the business (a so-called "co founder agreement sample online India-sale" right). Yet generally speaking, keep in mind rights embodied in an Investors' Rights Agreement are the right to register one's stock with the SEC, the ideal to receive information in the company on a consistent basis, and property to purchase stock in any new issuance.