Investors’ Rights Agreements – The three 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 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 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 via the company that they can maintain “true books and records of account” within a system of accounting in keeping with accepted accounting systems. Corporation also must covenant anytime the end of each fiscal year it will furnish each and every stockholder an equilibrium sheet of this company, revealing the financials of enterprise such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget every year including 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 ability to purchase a pro rata share of any new offering of equity securities from the company. This means that the company must provide ample notice into the shareholders of the equity offering, and permit each shareholder a degree of with regard to you exercise their specific right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise her / his right, rrn comparison to the company shall have a choice to sell the stock to more events. The Agreement should also address whether not really the shareholders have the to transfer these rights of first refusal.

There will also special rights usually awarded to large venture capitalist investors, like the right to elect an of the business’ directors and also the right to participate in selling of any shares expressed by the founders equity agreement template India Online of the company (a so-called “co-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement the actual right to join up one’s stock with the SEC, proper way to receive information in the company on the consistent basis, and the right to purchase stock any kind of new issuance.