Investors’ Rights Agreements – Several Basic Rights

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 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 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 coming from a company that they will maintain “true books and records of account” in a system of accounting in step with accepted accounting systems. The also must covenant that anytime the end of each fiscal year it will furnish to every stockholder a balance sheet belonging to the company, revealing the financials of an additional such as gross revenue, losses, profit, and salary. The company will also provide, in advance, an annual budget for every year and a financial report after each fiscal quarter.

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 ability to purchase a pro rata share of any new offering of equity securities by the company. This means that the company must records notice into the shareholders within the equity offering, and permit each shareholder a fair bit of a person to exercise their specific right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her own right, in contrast to the company shall have selecting to sell the stock to more events. The Agreement should also address whether or the shareholders have the to transfer these rights of first refusal.

There are also special rights usually awarded to large venture capitalist investors, including right to elect an of the firm’s directors as well as the right to participate in in generally of any shares completed by the founders equity agreement template India Online of supplier (a so-called “co-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement always be the right to join up to one’s stock with the SEC, the correct to receive information in the company on a consistent basis, and obtaining to purchase stock any kind of new issuance.