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 type 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 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 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 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’ll maintain “true books and records of account” in the system of accounting in keeping with accepted accounting systems. Corporation also must covenant if the end of each fiscal year it will furnish every single stockholder an equilibrium sheet belonging to the company, revealing the financials of the such as gross revenue, losses, profit, and cash flow. 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 secure a right of first refusal in the Agreement. This means that each major investor shall have the legal right to purchase a professional rata share of any new offering of equity securities together with company. This means that the company must records notice towards shareholders of the equity offering, and permit each shareholder a fair bit of a person to exercise as his or her right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise your right, than the company shall have alternative to sell the stock to more events. The Agreement should also address whether not really the shareholders have a right to transfer these rights of first refusal.

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