An Investors' Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company's stock or other form 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 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 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 ability 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 may maintain "true books and records of account" in the system of accounting based on accepted accounting systems. Corporation also must covenant that after the end of each fiscal year it will furnish to each stockholder a balance sheet belonging to 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 for every year including a financial report after each fiscal one fourth.
Finally, the investors will almost always want to have a right of first refusal in the Agreement. Which means that each major investor shall have the legal right to purchase an experienced guitarist rata share of any new offering of equity securities using the company. Which means that the company must records notice towards shareholders of the equity offering, and permit each shareholder a degree of time exercise as his or her right. Generally, 120 days is since. If after 120 days the shareholder does not exercise her own right, n comparison to the company shall have picking to sell the stock to other parties. The Startup Founder Agreement Template India online should also address whether or the shareholders have the 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 youre able to send directors and also the right to participate in in selling of any shares expressed by the founders of the company (a so-called "co-sale" right). Yet generally speaking, the main rights embodied in an Investors' Rights Agreement always be the right to register one's stock with the SEC, significance to receive information of the company on the consistent basis, and good to purchase stock in any new issuance.