An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other form 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 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 firm’s 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 will maintain “true books and records of account” from a system of accounting consistent with accepted accounting systems. A lot more claims also must covenant anytime the end of each fiscal year it will furnish each and every stockholder a balance sheet belonging to the company, revealing the financials of enterprise such as gross revenue, losses, profit, and salary. The company will also provide, in advance, an annual budget every year using 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. Which 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 provide ample notice into the shareholders within the equity offering, and permit each shareholder a fair bit of time to exercise any right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise her / his right, n comparison to the company shall have a choice to sell the stock to other parties. The Startup Founder Agreement Template India online should also address whether not really the shareholders have a right to transfer these rights of first refusal.
There as well special rights usually awarded to large venture capitalist investors, including right to elect several of the company’s directors along with the right to sign up in the sale of any shares served by the founders of the business (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, significance to receive information at the company on the consistent basis, and property to purchase stock any kind of new issuance.