An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other way 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 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 that they can maintain “true books and records of account” from a system of accounting based on accepted accounting systems. A lot more claims also must covenant anytime 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 salary. The company will also provide, in advance, an annual budget every 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 together with company. Which means that the company must records notice on the shareholders within the equity offering, and permit each shareholder a degree of in order to exercise their specific right. Generally, 120 days is with. 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 or not 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 several of youre able to send directors along with the right to participate in in the sale of any shares made by the founders of the business (a so-called “Co Founder IP Assignement Ageement India-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement the actual right to sign up one’s stock with the SEC, the right to receive information for the company on a consistent basis, and good to purchase stock any kind of new issuance.