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 professional 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 ability 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 in line with accepted accounting systems. The company also must covenant that anytime the end of each fiscal year it will furnish each and every stockholder an account balance sheet of the 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 for each year having a financial report after each fiscal quarter.
Finally, the investors will almost always want to secure a right of first refusal in the Agreement. This means that each major investor shall have the authority to purchase a professional rata share of any new offering of equity securities by the company. Which means that the company must provide ample notice towards the shareholders for the equity offering, and permit each shareholder a certain quantity of with regard to you exercise any right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise her own right, n comparison to the company shall have a choice to sell the stock to more events. The Agreement should also address whether or even otherwise the shareholders have a right to transfer these rights of first refusal.
There will also special rights usually awarded to large venture capitalist investors, such as the right to elect at least one of the company's directors and the right to participate in generally of any shares served by the founders equity agreement template India Online of supplier (a so-called "co-sale" right). Yet generally speaking, remember rights embodied in an Investors' Rights Agreement always be right to join one's stock with the SEC, the correct to receive information about the company on a consistent basis, and proper to purchase stock in any new issuance.