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 small business 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 from the company that they’ll maintain “true books and records of account” in a system of accounting in line with accepted accounting systems. Supplier also must covenant if the end of each fiscal year it will furnish to every stockholder an account balance sheet from the company, revealing the financials of an additional such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget each and every year having 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. This means that each major investor shall have the right to purchase a professional rata share of any new offering of equity securities using the company. This means that the company must records notice towards the shareholders for this equity offering, and permit each shareholder a certain quantity of with regard to you exercise their specific right. Generally, 120 days is handed. If after 120 days the shareholder does not exercise his or her right, than the company shall have a choice to sell the stock to other parties. The Agreement should also address whether or not the shareholders have a right to transfer these rights of first refusal.

There will also special rights usually awarded to large venture capitalist investors, similar to the right to elect at least one of the firm’s directors as well as the right to participate in selling of any shares created by the founders of the company (a so-called “Co Founder IP Assignement Ageement India-sale” right). Yet generally speaking, the main rights embodied in an Investors’ Rights Agreement are the right to join up to one’s stock with the SEC, significance to receive information for the company on a consistent basis, and property to purchase stock in any new issuance.