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 kind 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 company 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 can maintain “true books and records of account” in the system of accounting in line with accepted accounting systems. Corporation 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 supplier such as gross revenue, losses, profit, and monetary. The company will also provide, in advance, an annual budget for each year and 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 legal right to purchase a pro rata share of any new offering of equity securities from the company. Which means that the company must provide ample notice towards shareholders of the equity offering, and permit each shareholder a fair bit of in order to exercise their specific right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her own right, n comparison to the company shall have alternative to sell the stock to more events. The Agreement should also address whether or the shareholders have the to transfer these rights of first refusal.

There likewise special rights usually awarded to large venture capitalist investors, such as the right to elect at least one of the company’s directors along with the right to participate in in manage of any shares made by the founders of the particular (a so-called “co founder agreement sample online India-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement the actual right to sign up one’s stock with the SEC, the ideal to receive information at the company on the consistent basis, and obtaining to purchase stock in any new issuance.