Investors’ Rights Agreements – 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 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 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 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 via the company that they will maintain “true books and records of account” within a system of accounting consistent with accepted accounting systems. The company also must covenant that whenever the end of each fiscal year it will furnish each stockholder an account balance sheet for the company, revealing the financials of the such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget each and every year including a financial report after each fiscal one fourth.

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 authority to purchase a professional rata share of any new offering of equity securities by the company. Which means that the company must records notice to the shareholders for this equity offering, and permit each shareholder a certain amount of in order to exercise their specific right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise your right, n comparison to the company shall have alternative to sell the stock to more events. The Agreement should also address whether or even otherwise the shareholders have the to transfer these rights of first refusal.

There furthermore special rights usually awarded to large venture capitalist investors, like the right to elect at least one of the company’s directors along with the right to sign up in selling of any shares served by the founders of the company (a so-called “co founders agreement india template online-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement always be the right to join up one’s stock with the SEC, significance to receive information in the company on a consistent basis, and obtaining to purchase stock any kind of new issuance.