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 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 company 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 that they can maintain "true books and records of account" within a system of accounting consistent with accepted accounting systems. Supplier also must covenant that whenever the end of each fiscal year it will furnish to each stockholder an account balance sheet from 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 for every year using a financial report after each fiscal quarter.
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 an experienced guitarist rata share of any new offering of equity securities together with company. This means that the company must provide ample notice towards the shareholders for the equity offering, and permit each shareholder a degree of with regard to you exercise his or her right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise her own right, n comparison to the company shall have alternative to sell the stock to more events. The Startup Founder Agreement Template India online should also address whether not really the shareholders have the to transfer these rights of first refusal.
There will also special rights usually awarded to large venture capitalist investors, like the right to elect one or more of transmit mail directors along with the right to participate in manage of any shares created by the founders of the company (a so-called "co-sale" right). Yet generally speaking, keep in mind rights embodied in an Investors' Rights Agreement always be the right to join up one's stock with the SEC, the correct to receive information in the company on a consistent basis, and good to purchase stock any kind of new issuance.