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 although 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 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 authority 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 which they will maintain “true books and records of account” from a system of accounting consistent with accepted accounting systems. The company also must covenant that whenever the end of each fiscal year it will furnish every single stockholder a balance sheet belonging to the company, revealing the financials of an additional such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget for every year having 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. This means that each major investor shall have the authority to purchase a professional rata share of any new offering of equity securities along 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 a person to exercise their particular right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise her / his right, n comparison to the company shall have a choice to sell the stock to more events. The Agreement should also address whether or the shareholders have the to transfer these rights of first refusal.
There furthermore special rights usually awarded to large venture capitalist investors, such as the right to elect some form of of youre able to send directors as well as the right to sign up in the sale of any shares expressed by the founders equity agreement template India Online of the company (a so-called “co-sale” right). Yet generally speaking, fat burning capacity rights embodied in an Investors’ Rights Agreement the actual right to join up one’s stock with the SEC, significance to receive information of the company on the consistent basis, and proper to purchase stock any kind of new issuance.