An Investors' Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company's stock or other form 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 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 coming from a company which they will maintain "true books and records of account" from a system of accounting in line with accepted accounting systems. A lot more claims also must covenant that after the end of each fiscal year it will furnish every single stockholder a balance sheet of this company, revealing the financials of enterprise such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget for everybody year and a financial report after each fiscal 1 fourth.
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 right to purchase a pro rata share of any new offering of equity securities from the company. This means that the company must records notice on the shareholders for this equity offering, and permit each shareholder a certain quantity of time exercise as his or her right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise her / his right, n comparison to the company shall have selecting to sell the stock to other parties. The Agreement should also address whether or the shareholders have a right to transfer these rights of first refusal.
There furthermore special rights usually awarded to large venture capitalist investors, including right to elect one or more of youre able to send directors along with the right to participate in in generally of any shares completed by the founders of organization (a so-called "Co Founder Collaboration Agreement India-sale" right). Yet generally speaking, fat burning capacity rights embodied in an Investors' Rights Agreement are the right to join one's stock with the SEC, the right to receive information about the company on the consistent basis, and obtaining to purchase stock in any new issuance.