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 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 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 coming from a company that they will maintain "true books and records of account" in the system of accounting consistent with accepted accounting systems. Corporation also must covenant that anytime the end of each fiscal year it will furnish to each stockholder a balance sheet of this company, revealing the financials of an additional such as gross revenue, losses, profit, and cash flow. The company will also provide, in advance, an annual budget for everybody year together 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 ability to purchase an expert rata share of any new offering of equity securities together with company. This means that the company must provide ample notice on the shareholders for this equity offering, and permit each shareholder a fair bit of a person to exercise their specific right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise because their right, in contrast to the company shall have a choice to sell the stock to other parties. The Agreement should also address whether or even otherwise the shareholders have the to transfer these rights of first refusal.
There as well special rights usually awarded to large venture capitalist investors, including right to elect some form of of the company's directors as well as the right to participate in selling of any shares created by the founders of supplier (a so-called "Co Founder Collaboration Agreement India-sale" right). Yet generally speaking, keep in mind rights embodied in an Investors' Rights Agreement the actual right to join up one's stock with the SEC, the right to receive information at the company on a consistent basis, and proper to purchase stock any kind of new issuance.