Investors’ Rights Agreements – The 3 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 company 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 through company that they can maintain “true books and records of account” from a system of accounting in step with accepted accounting systems. The company also must covenant that whenever the end of each fiscal year it will furnish each and every stockholder an account balance sheet belonging to the company, revealing the financials of the such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget for everybody year and a financial report after each fiscal quarter.

Finally, the investors will almost always want to have 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 together with company. This means that the company must provide ample notice towards the shareholders within the equity offering, and permit each shareholder a certain quantity of with regard to you exercise as his or her right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise her own right, in contrast to the company shall have picking to sell the stock to other parties. The Agreement should also address whether or not the shareholders have the to transfer these rights of first refusal.

There as well special rights usually awarded to large venture capitalist investors, similar to the right to elect several of youre able to send directors along with the right to participate in the sale of any shares expressed by the founders of the particular (a so-called “co founders agreement india template online-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement always be the right to join one’s stock with the SEC, the right to receive information at the company on a consistent basis, and the right to purchase stock in any new issuance.