An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other type 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 from the company which they will maintain “true books and records of account” in a system of accounting consistent with accepted accounting systems. A lot more claims also must covenant anytime the end of each fiscal year it will furnish each stockholder an equilibrium sheet of the company, revealing the financials of enterprise such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget for everybody year together financial report after each fiscal three months.
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 right to purchase an expert rata share of any new offering of equity securities by the company. Which means that the company must provide ample notice on the shareholders from the equity offering, and permit each shareholder a fair bit of in order to exercise any right. Generally, 120 days is with. If after 120 days the shareholder does not exercise his or her right, rrn comparison to the company shall have selecting to sell the stock to more events. The Agreement should also address whether or even otherwise the shareholders have a right to transfer these rights of first refusal.
There likewise special rights usually awarded to large venture capitalist investors, including right to elect some form of of youre able to send directors along with the right to participate in the sale of any shares created by the founders of supplier (a so-called “Co Founder IP Assignement Ageement India-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement are the right to register one’s stock with the SEC, the ideal to receive information in the company on the consistent basis, and good to purchase stock any kind of new issuance.