An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other kind 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 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 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 through company that they’ll maintain “true books and records of account” from a system of accounting in step with accepted accounting systems. A lot more claims also must covenant that after the end of each fiscal year it will furnish every single stockholder a balance sheet of 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 for everybody year together financial report after each fiscal three months.
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 right to purchase a pro rata share of any new offering of equity securities together with company. This means that the company must provide ample notice to the shareholders of the equity offering, and permit each shareholder a specific quantity of time exercise any right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise his or her right, n comparison to the company shall have picking to sell the stock to other parties. The Agreement should also address whether or the shareholders have the to transfer these rights of first refusal.
There are also special rights usually awarded to large venture capitalist investors, similar to the right to elect one or more of the business’ directors along with the right to sign up in manage of any shares created by the founders of the particular (a so-called “Co Founder IP Assignement Ageement India-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement always be right to join one’s stock with the SEC, the correct to receive information in the company on the consistent basis, and obtaining to purchase stock any kind of new issuance.