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 firm’s 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 may maintain “true books and records of account” in the system of accounting in keeping with accepted accounting systems. Corporation also must covenant that whenever the end of each fiscal year it will furnish to each stockholder a balance sheet from the company, revealing the financials of the such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget for every year and a financial report after each fiscal three months.
Finally, the investors will almost always want to secure a right of first refusal in the Agreement. Which means that each major investor shall have the legal right to purchase an experienced guitarist rata share of any new offering of equity securities using the company. This means that the company must provide ample notice on the shareholders from the equity offering, and permit each shareholder a degree of in order to exercise his or her right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her / his right, rrn comparison to the company shall have alternative to sell the stock to other parties. The Agreement should also address whether or not the shareholders have a right to transfer these rights of first refusal.
There likewise special rights usually awarded to large venture capitalist investors, like the right to elect several of transmit mail directors and the right to participate in the sale of any shares created by the founders of the company (a so-called “co founders agreement india template online-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement always be right to register one’s stock with the SEC, the ideal to receive information at the company on a consistent basis, and proper to purchase stock any kind of new issuance.