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 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 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 through company that they can maintain “true books and records of account” in the system of accounting in line with accepted accounting systems. The company also must covenant that anytime the end of each fiscal year it will furnish each and every stockholder a balance sheet of this company, revealing the financials of the such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget for each year and a financial report after each fiscal fraction.
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 legal right to purchase a professional rata share of any new offering of equity securities from the company. This means that the company must records notice to the shareholders from the equity offering, and permit each shareholder a certain quantity of in order to exercise their particular right. Generally, 120 days is given. If after 120 days the shareholder does not exercise your right, rrn comparison to the company shall have the option to sell the stock to more events. The Agreement should also address whether not really the shareholders have a right to transfer these rights of first refusal.
There likewise special rights usually awarded to large venture capitalist investors, like the right to elect one or more of the company’s directors as well as the right to sign up in the sale of any shares completed by the founders of the particular (a so-called “Co Founder IP Assignement Ageement India-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement the actual right to sign up one’s stock with the SEC, the ideal to receive information about the company on the consistent basis, and the right to purchase stock in any new issuance.