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 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 credit repair 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 legal 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 which they will maintain “true books and records of account” in a system of accounting in keeping with accepted accounting systems. Supplier also must covenant that after the end of each fiscal year it will furnish to every stockholder a balance sheet belonging to the company, revealing the financials of enterprise such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget for every year and 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 right to purchase a professional rata share of any new offering of equity securities along with company. This means that the company must records notice towards shareholders from the equity offering, and permit each shareholder a degree of in order to exercise his or her right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise your right, than the company shall have a choice 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 youre able to send directors and also the right to sign up in the sale of any shares expressed 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 the actual right to register one’s stock with the SEC, significance to receive information of the company on the consistent basis, and the right to purchase stock in any new issuance.