Investors’ Rights Agreements – The 3 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 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 the company which they will maintain “true books and records of account” within a system of accounting in keeping with accepted accounting systems. Supplier also must covenant that anytime the end of each fiscal year it will furnish to every stockholder an account balance sheet of this company, revealing the financials of an additional 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 three months.

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 legal right to purchase an experienced guitarist rata share of any new offering of equity securities along with company. This means that the company must provide ample notice towards the shareholders for this equity offering, and permit each shareholder a specific quantity of in order to exercise as his or her right. Generally, 120 days is since. If after 120 days the shareholder does not exercise her own 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 the to transfer these rights of first refusal.

There are also special rights usually awarded to large venture capitalist investors, for example , right to elect one or more of the firm’s directors and also the right to participate in the sale of any shares served by the founders equity agreement template India Online of the business (a so-called “co-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement are the right to join up one’s stock with the SEC, proper way to receive information of the company on a consistent basis, and obtaining to purchase stock in any new issuance.