An Investors' Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company's stock or other involving 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 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 professional 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 ability 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 may maintain "true books and records of account" within a system of accounting in line with accepted accounting systems. The also must covenant if the end of each fiscal year it will furnish each stockholder an equilibrium sheet of the company, revealing the financials of supplier such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget for everybody 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. This means that each major investor shall have the right to purchase an expert rata share of any new offering of equity securities from the company. This means that the company must provide ample notice towards shareholders within the equity offering, and permit each shareholder a certain amount of time exercise any right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise his or her right, versus the company shall have the option 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 as well special rights usually awarded to large venture capitalist investors, for example , right to elect an of the company's directors and also the right to sign up in manage of any shares served by the founders of supplier (a so-called "co founders agreement india template online-sale" right). Yet generally speaking, view rights embodied in an Investors' Rights Agreement the actual right to join up to one's stock with the SEC, proper way to receive information at the company on the consistent basis, and good to purchase stock any kind of new issuance.