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 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 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 legal 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 from your company that they may maintain “true books and records of account” in a system of accounting based on accepted accounting systems. A lot more claims also must covenant anytime the end of each fiscal year it will furnish to every stockholder an equilibrium sheet for the company, revealing the financials of supplier such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget for every year and a financial report after each fiscal one fourth.

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 an experienced guitarist rata share of any new offering of equity securities from the company. Which means that the company must provide ample notice towards shareholders for this equity offering, and permit each shareholder a certain quantity of in order to exercise any right. Generally, 120 days is handed. 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 not really the shareholders have the to transfer these rights of first refusal.

There as well special rights usually awarded to large venture capitalist investors, for example , right to elect some form of of the business’ directors along with the right to participate in generally of any shares made by the founders of the particular (a so-called “Co Founder Collaboration Agreement India-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement are the right to join up one’s stock with the SEC, the correct to receive information about the company on a consistent basis, and good to purchase stock in any new issuance.