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 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 can maintain “true books and records of account” within a system of accounting in line with accepted accounting systems. The company also must covenant that anytime the end of each fiscal year it will furnish each stockholder a balance sheet from 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 for every year including a financial report after each fiscal fraction.

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 pro rata share of any new offering of equity securities by the company. This means that the company must records notice on the shareholders for this 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 her / his right, versus the company shall have alternative to sell the stock to other parties. The Agreement should also address whether or the shareholders have the to transfer these rights of first refusal.

There furthermore special rights usually awarded to large venture capitalist investors, such as the right to elect one or more of the company’s directors and also the right to sign up in manage of any shares made by the founders of the business (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, keep in mind rights embodied in an Investors’ Rights Agreement are the right to join one’s stock with the SEC, the right to receive information of the company on the consistent basis, and proper to purchase stock in any new issuance.