What is an Investor Rights Agreement Review?
An investor rights agreement is a legal contract that explains what rights investors will be granted, such as information and registration rights, by a company. It has to be clear and specific to avoid disputes between parties.
If you’ve drafted an investor rights agreement, you should review it closely for clarity.
Read the rest of this article to explore key terms in the agreement and how to review them, as well as why you should hire a lawyer to provide an in-depth review of your investor rights agreement.
What are Key Terms to Review in an Investor Rights Agreement?
An investor rights agreement usually contains the following core terms that you should review for accuracy and clarity to ensure that all parties understand them.
- Company covenants. Verify all commitments from the company to secure the investors’ capital.
- Registration rights. Check what mechanisms are in place for investors to require a company to register their shares with regulatory bodies.
- Information rights. This should give investors access to operational and financial information for transparency.
- Preemptive rights. Consider what opportunities investors have to buy newly issued shares in future financing rounds before outside buyers can purchase them.
- Preferred director approval rights. Check what conditions or actions need to be approved by preferred directors.
How Should You Review an Investor Rights Agreement?
When reviewing information in an investor rights agreement, you should consider what rights the investors have and how much protection this provides them. Here are some things to think about during the review process.
Understand the Deal
You should start your review by checking all the basic info, such as who the investors are, what percentages they own, and that the document doesn’t conflict with other company documents.
Check every right that is given to the investors, such as board or inspection rights. Make sure that they’re all clearly defined so that there’s no confusion over what investors are getting. For example, for information rights, you’ll want to know what information is accessed and how frequently.
Include Definitions
There can be confusing terms in the agreement that are open to misinterpretation. It’s worth including a comprehensive definitions clause filled with key terms appearing in the entire document so that you can refer back to them for clarity. This ensures that all parties reading the document will understand its terms.
Verify Termination Provisions
It’s important to consider what happens upon agreement termination and what rights will survive despite the contract coming to an end. You should also check if other provisions, such as those regarding confidentiality and dispute resolution, will survive. If you’re unsure of what to look for, consider hiring a lawyer for assistance.
Should You Hire a Lawyer to Review Your Investor Rights Agreement?
While you can review an investor rights agreement yourself, it’s worth hiring a lawyer to conduct a professional review of it. This is especially important if the contract involves significant ownership or it’s complex and challenging to understand.
A lawyer can help you in various ways during a legal review, such as by:
- Checking the investor’s level of control to ensure that it’s clear and specific in the agreement.
- Identifying all decisions that require investor approval.
- Checking all included terms and definitions for accuracy.
- Considering anti-dilution protection. A lawyer will assess how it works so that there’s no ambiguity.
- Examining if investors can maintain their percentage ownership for future financing rounds of the company.
- Assessing transfer restrictions, such as regarding selling or transferring the shares.
- Evaluating exit provisions so that parties gain clarity. They’ll also help you to understand your termination obligations, such as regarding rights that survive contract termination.
- Referring to other company documents to prevent any conflicting information that could create challenges in future.
- Explaining if changes in the company, such as if the company is sold or merges with another company, could influence or trigger investor rights.
- Protecting your rights by considering which party can amend the agreement terms.
Where to Find a Lawyer for an Investor Rights Agreement Review
If you need to hire a qualified lawyer to review your investor rights agreement, you don’t have to wonder where to find one, such as by considering reaching out to people you know for lawyer recommendations. Hiring a lawyer is made easier by using an online legal platform, which gives you access to experienced lawyers in your location.
ContractsCounsel is one of the largest online legal marketplaces that puts you in touch with a curated network of lawyers who have the credentials and experience to assist you with reviewing your investor rights agreement.
To ask a lawyer on the platform to review your contract, here are the easy steps to follow without having to leave your home:
- Start by going to the ContractsCounsel marketplace.
- Select ‘One-time project.’
- Choose ‘Contract review.’
- Post your project, or request for a contract review, which is free to do.
- Include some information about what you need to help you match with the most suitable lawyers, such as why you need a review or if there are specific clauses that you’re worried about.
- Wait for bids. Without having to search for lawyers, you’ll receive multiple bids from lawyers on the platform.
- Review the lawyers’ profiles. ContractsCounsel provides transparent lawyer data you can access, such as the lawyers’ location, years of experience, credentials, field of expertise, and client ratings they’ve received from previous projects completed on the platform.
- Select a lawyer to hire. They’ll review your investor rights agreement for a flat fee.
