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 Rejection.
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 via the company that they’ll maintain “true books and records of account” in a system of accounting based on 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 for the company, revealing the financials of supplier such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget for each year together financial report after each fiscal quarter.
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 a pro rata share of any new offering of equity securities along with company. This means that the company must provide ample notice towards shareholders of the equity offering, and permit each shareholder a degree of with regard to you exercise any right. Generally, 120 days is with. If after 120 days the shareholder does not exercise her / his right, n comparison to the company shall have a choice to sell the stock to more events. The Agreement should also address whether or even otherwise the shareholders have the to transfer these rights of first refusal.
There furthermore special rights usually awarded to large venture capitalist investors, similar to the right to elect one or more of transmit mail directors and also the right to participate in in manage of any shares created by the founders of the company (a so-called “Co Founder IP Assignement Ageement India-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement the actual right to join one’s stock with the SEC, proper way to receive information about the company on a consistent basis, and proper to purchase stock any kind of new issuance.