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 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 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 through company which they will maintain "true books and records of account" within a system of accounting in step with accepted accounting systems. A lot more claims also must covenant if the end of each fiscal year it will furnish each and every stockholder an equilibrium sheet belonging to the company, revealing the financials of the company such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget every year having a 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 legal right to purchase a professional rata share of any new offering of equity securities together with company. This means that the company must records notice on the shareholders for the equity offering, and permit each shareholder a degree of time to exercise any right. Generally, 120 days is given. If after 120 days the shareholder does not exercise because their right, than the company shall have selecting to sell the stock to other parties. The Agreement should also address whether not really the shareholders have a right to transfer these rights of first refusal.
There will also special rights usually awarded to large venture capitalist investors, such as the right to elect at least one of the firm's directors and also the right to sign up in manage of any shares served by the founders of supplier (a so-called "Co Founder IP Assignement Ageement India-sale" right). Yet generally speaking, fat burning capacity rights embodied in an Investors' Rights Agreement always be the right to join up one's stock with the SEC, the ideal to receive information about the company on the consistent basis, and proper to purchase stock any kind of new issuance.