Investors’ Rights Agreements – Three 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 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 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 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 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 via the company that they may maintain “true books and records of account” from a system of accounting in keeping with accepted accounting systems. The company also must covenant that whenever the end of each fiscal year it will furnish each stockholder an account balance sheet belonging to the company, revealing the financials of an additional such as gross revenue, losses, profit, and profits. The company will also provide, in advance, an annual budget each and every year using a financial report after each fiscal three months.

Finally, the investors will almost always want to secure a right of first refusal in the Agreement. Which means that each major investor shall have the legal right to purchase a professional rata share of any new offering of equity securities from the company. This means that the company must provide ample notice on the shareholders from the equity offering, and permit each shareholder a specific quantity of a person to exercise his or her right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise her / his right, versus the company shall have a choice to sell the stock to more events. The Agreement should also address whether or not the shareholders have a right to transfer these rights of first refusal.

There are also special rights usually awarded to large venture capitalist investors, such as the right to elect one or more of transmit mail directors and the right to sign up in the sale of any shares served by the founders of the particular (a so-called “Co Founder IP Assignement Ageement India-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement are the right to join up to one’s stock with the SEC, significance to receive information at the company on the consistent basis, and good to purchase stock in any new issuance.