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 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 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 through company that they will maintain "true books and records of account" within a system of accounting consistent with accepted accounting systems. The company also must covenant anytime the end of each fiscal year it will furnish to every stockholder a balance sheet from 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 together financial report after each fiscal fraction.
Finally, the investors will almost always want to have 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 from the company. Which means that the company must provide ample notice to the shareholders of the equity offering, and permit each shareholder a specific quantity of time exercise their specific right. Generally, 120 days is given. If after 120 days the shareholder does not exercise his or her right, in contrast to the company shall have selecting 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 are also special rights usually awarded to large venture capitalist investors, including right to elect at least one of transmit mail directors as well as the right to participate in in the sale of any shares completed by the founders equity agreement template India Online of the business (a so-called "co-sale" right). Yet generally speaking, fat burning capacity rights embodied in an Investors' Rights Agreement are the right to join one's stock with the SEC, significance to receive information about the company on the consistent basis, and good to purchase stock any kind of new issuance.