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 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 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 your company that they’ll maintain “true books and records of account” in the system of accounting consistent with accepted accounting systems. Supplier also must covenant that whenever the end of each fiscal year it will furnish every single stockholder an equilibrium sheet of the company, revealing the financials of the company such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget for each year together financial report after each fiscal fraction.
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 legal right to purchase an expert rata share of any new offering of equity securities from the company. Which means that the company must records notice to the shareholders from the equity offering, and permit each shareholder a fair bit of with regard to you exercise his or her right. Generally, 120 days is with. If after 120 days the shareholder does not exercise her own right, versus the company shall have selecting to sell the stock to more events. The Agreement should also address whether or even otherwise the shareholders have the to transfer these rights of first refusal.
There furthermore special rights usually awarded to large venture capitalist investors, including right to elect at least one of transmit mail directors and the right to participate in manage of any shares created by the founders of the particular (a so-called “Co Founder Collaboration Agreement India-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement are the right to join up to one’s stock with the SEC, the ideal to receive information of the company on a consistent basis, and property to purchase stock in any new issuance.