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 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 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 via the company that they'll maintain "true books and records of account" in a system of accounting in line with accepted accounting systems. The company 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 the such as gross revenue, losses, profit, and monetary. The company will also provide, in advance, an annual budget each and every year together financial report after each fiscal fraction.
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 using the company. Which means that the company must provide ample notice into the shareholders for this equity offering, and permit each shareholder a specific quantity of time exercise their specific right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise her / his right, n comparison to the company shall have selecting to sell the stock to other parties. The Agreement should also address whether or the shareholders have the to transfer these rights of first refusal.
There as well special rights usually awarded to large venture capitalist investors, including right to elect at least one of the company's directors and also the right to sign up in manage of any shares created by the founders equity agreement template India Online of the company (a so-called "co-sale" right). Yet generally speaking, keep in mind rights embodied in an Investors' Rights Agreement always be the right to register one's stock with the SEC, the correct to receive information at the company on a consistent basis, and the right to purchase stock in any new issuance.