Information and Inspection Rights
Explaination: Information rights terms are included for the benefit of investors, providing them with information via periodic reports from the promoters such as cash flow statements, balance sheets, business and marketing plans etc.
Information rights term also includes the right to visitation and inspection. Inspection involves the reviewing of books of accounts and other statutory documents by the investors. An investor may also ask for the right to conduct an audit of the company.
How it applies to Startup/Investor and its impact: Investor’s look for Information rights in the term-sheet so that they are updated and informed about the happenings in the Start-up. This right helps them to review the cash flow statements, balance sheets and other business or marketing plans.
Investor’s negotiate for this right because they are not the part of day to day management of the Start-ups. So they periodically want to see that everything is going as per the business plan and the Start-up or their Founder’s are not involved in any wrong-doing like embezzlement of funds etc.