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 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 authority to freely sell the shares without complying with the restrictions of Rule 144.
In any solid Investors’ Rights Startup Founder Agreement Template India online, the investors will also secure a promise coming from a company which they will maintain “true books and records of account” within a system of accounting consistent with accepted accounting systems. The company also must covenant that after the end of each fiscal year it will furnish to every stockholder an equilibrium sheet belonging to the company, revealing the financials of the company such as gross revenue, losses, profit, and salary. The company will also provide, in advance, an annual budget for everybody year including 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 authority to purchase a pro rata share of any new offering of equity securities from the company. Which means that the company must records notice into the shareholders from the equity offering, and permit each shareholder a specific quantity of time exercise as his or her right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise her / his right, n comparison to the company shall have alternative to sell the stock to more events. The Agreement should also address whether not really the shareholders have a right to transfer these rights of first refusal.
There furthermore special rights usually awarded to large venture capitalist investors, such as the right to elect at least one of the firm’s directors as well as the right to participate in the sale of any shares served by the founders of the particular (a so-called “co-sale” right). Yet generally speaking, remember rights embodied in an Investors’ Rights Agreement always be the right to register one’s stock with the SEC, significance to receive information in the company on the consistent basis, and obtaining to purchase stock in any new issuance.