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 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 may maintain “true books and records of account” from a system of accounting in keeping with accepted accounting systems. A lot more claims also must covenant that anytime the end of each fiscal year it will furnish to each stockholder an equilibrium sheet of 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 every year using a financial report after each fiscal 1 fourth.
Finally, the investors will almost always want to have a right of first refusal in the Agreement. This means that each major investor shall have the ability to purchase a pro rata share of any new offering of equity securities along with company. Which means that the company must records notice towards shareholders for the equity offering, and permit each shareholder a specific quantity of with regard to you exercise his or her right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise because their right, in contrast to the company shall have alternative to sell the stock to more events. The Agreement should also address whether not really 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 one or more of youre able to send directors along with the right to participate in in manage of any shares completed by the founders of the particular (a so-called “Co Founder IP Assignement Ageement India-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement would be right to join one’s stock with the SEC, the right to receive information at the company on a consistent basis, and the right to purchase stock any kind of new issuance.