Investors’ Rights Agreements – The 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 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 small business 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 via the company which they will maintain “true books and records of account” in a system of accounting based on accepted accounting systems. The company also must covenant that anytime the end of each fiscal year it will furnish to every stockholder an account balance sheet for the company, revealing the financials of enterprise such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget every year together financial report after each fiscal quarter.

Finally, the investors will almost always want to have a right of first refusal in the Agreement. This means that each major investor shall have the authority to purchase a professional rata share of any new offering of equity securities along with company. Which means that the company must records notice towards the shareholders for the equity offering, and permit each shareholder a degree of time to exercise any right. Generally, 120 days is with. If after 120 days the shareholder does not exercise your right, in contrast to the company shall have picking to sell the stock to more events. The Agreement should also address whether or the shareholders have a right to transfer these rights of first refusal.

There furthermore 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 in selling of any shares made by the founders equity agreement template India Online of the company (a so-called “co-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement always be right to join one’s stock with the SEC, significance to receive information of the company on the consistent basis, and good to purchase stock in any new issuance.