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 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 small business 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 legal right 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” within a system of accounting based on accepted accounting systems. Supplier also must covenant anytime the end of each fiscal year it will furnish each and every stockholder an equilibrium sheet belonging to the company, revealing the financials of the such as gross revenue, losses, profit, and monetary. The company will also provide, in advance, an annual budget for everybody year and a financial report after each fiscal quarter.
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 from the company. Which means that the company must records notice on the shareholders of the equity offering, and permit each shareholder a fair bit of with regard to you exercise their specific right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise her own right, than the company shall have selecting to sell the stock to more events. The Agreement should also address whether or not the shareholders have a right to transfer these rights of first refusal.
There are also special rights usually awarded to large venture capitalist investors, including right to elect some form of of youre able to send directors as well as the right to participate in in the sale of any shares made by the founders equity agreement template India Online of the particular (a so-called “co-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement would be right to join up one’s stock with the SEC, the correct to receive information about the company on a consistent basis, and proper to purchase stock in any new issuance.