Investors’ Rights Agreements – A number of 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 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 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 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 the company that they can maintain “true books and records of account” within a system of accounting in keeping with accepted accounting systems. A lot more claims also must covenant that whenever the end of each fiscal year it will furnish each stockholder a balance sheet from the company, revealing the financials of the company such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget every year together 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 an experienced guitarist rata share of any new offering of equity securities together with company. Which means that the company must records notice on the shareholders for the equity offering, and permit each shareholder a specific quantity of a person to exercise any right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise his or her right, n comparison to the company shall have selecting 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 as well special rights usually awarded to large venture capitalist investors, like the right to elect at least one of transmit mail directors along with the right to sign up in selling of any shares completed by the founders of the company (a so-called “Co Founder IP Assignement Ageement India-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 right to receive information of the company on a consistent basis, and the right to purchase stock any kind of new issuance.
