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 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 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 from your company that they'll maintain "true books and records of account" within a system of accounting consistent with accepted accounting systems. Supplier also must covenant that anytime the end of each fiscal year it will furnish to each stockholder an equilibrium sheet of this company, revealing the financials of an additional 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 quarter.
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 right to purchase a professional rata share of any new offering of equity securities using the company. This means that the company must records notice towards the shareholders of the equity offering, and permit each shareholder a degree of time to exercise their particular right. Generally, 120 days is since. If after 120 days the shareholder does not exercise his or her right, rrn comparison to the company shall have selecting 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 likewise special rights usually awarded to large venture capitalist investors, similar to the right to elect some form of of the company's directors and also the right to participate in in the sale of any shares expressed by the founders of supplier (a so-called "Co Founder IP Assignement Ageement India-sale" right). Yet generally speaking, remember rights embodied in an Investors' Rights Agreement are the right to join up to one's stock with the SEC, the correct to receive information in the company on a consistent basis, and good to purchase stock any kind of new issuance.