An Investors' Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company's stock or other involving 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 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 authority 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 in line with accepted accounting systems. Corporation also must covenant that whenever the end of each fiscal year it will furnish to every stockholder an equilibrium sheet of the company, revealing the financials of an additional such as gross revenue, losses, profit, and monetary. The company will also provide, in advance, an annual budget for everybody year using 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 ability to purchase an expert rata share of any new offering of equity securities along with company. This means that the company must records notice towards the shareholders from the equity offering, and permit each shareholder a degree of time exercise their specific right. Generally, 120 days is extended. If after 120 days the shareholder does not exercise your right, than the company shall have a choice to sell the stock to more events. The Agreement should also address whether or not the shareholders have a right to transfer these rights of first refusal.
There furthermore special rights usually awarded to large venture capitalist investors, like the right to elect some form of of transmit mail directors as well as the right to participate in generally of any shares expressed by the founders of supplier (a so-called "Co Founder Collaboration Agreement India-sale" right). Yet generally speaking, fat burning capacity rights embodied in an Investors' Rights Agreement are the right to register one's stock with the SEC, the correct to receive information at the company on the consistent basis, and proper to purchase stock any kind of new issuance.