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 involving 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 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’ll maintain “true books and records of account” in the system of accounting consistent with accepted accounting systems. Corporation also must covenant if the end of each fiscal year it will furnish each and every stockholder a balance sheet of the company, revealing the financials of an additional such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget each and 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. This means that each major investor shall have the right to purchase a pro rata share of any new offering of equity securities from the company. This means that the company must records notice on the shareholders for the equity offering, and permit each shareholder a certain quantity of in order to exercise their specific right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise because their right, than the company shall have picking 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 will also special rights usually awarded to large venture capitalist investors, for example , right to elect one or more of the company’s directors and the right to participate in manage of any shares expressed by the founders equity agreement template India Online of organization (a so-called “co-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement always be right to join one’s stock with the SEC, the ideal to receive information in the company on the consistent basis, and good to purchase stock in any new issuance.