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 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 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 your 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 every stockholder an equilibrium sheet of this 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 for everybody 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. This means that each major investor shall have the right to purchase an experienced guitarist rata share of any new offering of equity securities along with company. Which means that the company must records notice towards the shareholders for the equity offering, and permit each shareholder a degree of a person to exercise their particular right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her / his right, versus 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, such as the right to elect at least one of the firm’s directors as well as the right to sign up in generally of any shares made by the founders of organization (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 up to one’s stock with the SEC, the correct to receive information at the company on a consistent basis, and property to purchase stock in any new issuance.