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 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’ll maintain “true books and records of account” within a system of accounting in step with accepted accounting systems. The company also must covenant that anytime the end of each fiscal year it will furnish each stockholder a balance sheet of the company, revealing the financials of the such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget for each 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 authority to purchase a pro rata share of any new offering of equity securities together with company. Which means that the company must records notice on the shareholders within the equity offering, and permit each shareholder a degree of with regard to you exercise any right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her / his right, versus the company shall have the option to sell the stock to other parties. The Agreement should also address whether not really the shareholders have the to transfer these rights of first refusal.
There will also special rights usually awarded to large venture capitalist investors, including right to elect one or more of the company’s directors and also the right to sign up in manage of any shares expressed by the founders equity agreement template India Online of the company (a so-called “co-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement always be right to join one’s stock with the SEC, significance to receive information in the company on the consistent basis, and property to purchase stock in any new issuance.