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 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 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 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 that they can maintain “true books and records of account” within a system of accounting based on accepted accounting systems. The also must covenant if the end of each fiscal year it will furnish to each stockholder a balance sheet of 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 each year having a financial report after each fiscal three months.

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 authority to purchase a pro rata share of any new offering of equity securities using the company. Which means that the company must records notice towards the shareholders from the equity offering, and permit each shareholder a degree of a person to exercise any right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise her / his right, n comparison to the company shall have picking to sell the stock to more events. The Agreement should also address whether or not the shareholders have the to transfer these rights of first refusal.

There furthermore special rights usually awarded to large venture capitalist investors, similar to the right to elect an of the business’ directors along with the right to participate in generally of any shares served by the founders of supplier (a so-called “Co Founder IP Assignement Ageement India-sale” right). Yet generally speaking, view rights embodied in an Investors’ Rights Agreement are the right to join up to one’s stock with the SEC, the ideal to receive information for the company on the consistent basis, and proper to purchase stock in any new issuance.