Westminster international university in tashkent

Analysis

3. Submission 1. Your main interest in the company is selling the non-exclusive license for Intellectual Property (hereafter referred as ‘IP’) as well as ‘Know-Hows’ and receive royalties.

4. This can be achieved by making a separate licensing agreement (see Appendix C) with the company, which must include the scope of transferred rights and detailed structure of payment, in our case it is royalties. S. 6 (a) of Articles states that the director may be the party to any arrangements or transactions with the company, in which the company is directly or indirectly interested. As long as you are the director and the shareholder at the same time, the issue that may arise is that this section allows you to make the agreement with company only as the director, but not as shareholder. Therefore it is advised to amend this section (see Appendix A) by the insertion of the words “and/or shareholder” after the word “director” by special resolution¹. This amendment will allow you the flexibility to maintain the agreement with the company as the shareholder, in case if you will stop being a director.

5. Moreover, under S. 177 (5, 6) and S. 182 (5, 6) of the Companies Act 2006, you are not obliged to declare your interest to other directors, if they are aware of this agreement and interest and if it does not cause conflict of interest. However, the issue may raise if other directors will state otherwise. Therefore, you are advised to declare the nature and extent of the agreement with other directors under the Companies Act 2006².

6. Submission 2. Your next objective is to keep some level of control in the company and have an access to the insider information of the company, even though you are the minority shareholder. However, as the holder of IP in the company you have the following options.

7. First option is to add the provision “Revision Rights” (see Appendix B) into the Agreement, which will allow the shareholders who own 20% or more than 20% of shares to revise and monitor the actions of the company. In particular, this provision must grant the shareholders who are subject to this provision, with the right to check the financial and economic activities of the company. This particular provision will allow you to observe the information regarding the actions of the company including the usage of your IP. Moreover, this provision should include the statement that will allow one shareholder to be elected as the as the only reviser other or otherwise agreed by the initiative of other shareholders. In negotiations with other shareholders, during the discussion of this provision, you will be offered to be the only reviser under this provision as you are the shareholder who can properly revise the process of IP’ usage in the company.

8. The provision of ‘Revision Right’ will grant you only with the access to the internal information of the company; however, it will not provide you with certain level of control in the company. Therefore, you are advised to become the official director of the company. Under S.10 (1) of the Agreement, you have the right to appoint yourself as the director of the company. However, under S 10 (2) of the agreement, you are obliged to provide the company and other shareholders with the written notice about the appointment and in case if you fail to perform these under the Agreement, other shareholders may bring an action claiming damages under the Contract law.

9. It is important to note that being appointed as the director of the company you will have the control in the company and access to its all-internal information, but you will have to comply with all duties of the director under Companies Act 2006³ and under Articles and Agreement.

10. Submission 3. Your next request was whether you could legalize your friendly relationship with Beatrice by making gentlemen’s agreement, which will bind her to back you up in case of the need to push or block some decisions. According to S.18 of the Agreement, parties cannot have any partnership or joint venture or constitute any party as the agent of another party. It is important to note that all shareholders have right to be appointed as directors and act as both shareholder and director. In this situation, your request might be achieved in two ways.

11. You are advised to become the alternate director of Beatrice or to appoint Beatrice as your alternate director by resolution of directors under Articles.⁴ It will allow you to exercise Beatrice’s powers, in particular to vote and make decisions in case if she is absent. However, this will not grant you the right to promote your own interests in decision making as S.12 (2) (d) of Articles will prohibit you to be the agent of Beatrice. In general, the appointment of alternate director will allow you and Beatrice to support each other when one of you will be absent. However, it is important to note that if one of you will not be appointed as directors, this right cannot be exercised.

12. You can make the appointment of alternate director as the director, but not as shareholder, therefore you are advised to make separate shareholder’s voting agreement with Beatrice. According to the decision made in Puddephatt v Leith [1916]⁵, shareholders may enter into agreements that define the way in which the voting rights are exercised. Additionally, Lord Greene MR⁶ stated that these agreements might be enforced by mandatory injunction. Your voting agreement must include the conditions and circumstances in which you can back up your decisions by voting. However, the issue may rise when there will be the conflict of interests. Therefore, you are advised to include the term in the agreement that will restrict its application when conflict of interests will arise. It is important because you need to avoid breaching the duty under S. 175 of Companies Act 2006 (duty to avoid conflict of interests) and comply with S. 7 of the Articles.

13. Submission 4. Your next request is that you would like to have an option to increase your shares and maintain the voting control. The first way where shareholders can increase their amount of shares is when company issues new shares. However, the problem that you may confront when new shares are issued is the availability of those shares to you. Therefore, it is advised to include the provision “Pre-emption Rights” (see Appendix B) into shareholders agreement. The pre-emption right obliges the company to offer the sale of new shares to the existing shareholders, which is practicable equal to the proportion in nominal value held by each shareholder before allotting the shares to others.⁷ Consequently, in the future you will have the opportunity to increase your shares by pre-emption rights when new shares will be issued in the company.

14. Another way of increasing your shares is buying the shares of Melanie as long she brought an interest in selling her shares if company goes public. This might be another option for you. However, the issue may arise whether Melanie will be agree to sell her shares to you. As long as you are the owner of IP, which is important for the operation of the company, you are advised to make a call option agreement with Melanie that will legally oblige her to offer the sale of shares to you, which will give you the legal right to buy those shares. However, this needs to be done with the consent of Melanie and other shareholders.

15. Submission 5. Your next proposal is that you would like to leave the company without any liability and with the payback of your investments into the company.

16. According to Farewell J⁸, ‘a share is the interest of the shareholder measured by the sum of money for the purpose of liability in the first place and of the interest in second’. The shareholders’ liability in the private limited company by shares is to pay for the amount of unpaid shares.⁹ Similarly, you as the shareholder of the private company limited by shares is liable for the amount of unpaid shares and before exiting the company you will need to make sure that your shares are fully paid. As the additional option, you can pay for the shares by your Know-How instead of money under S. 582 (1), in case if you will have unpaid shares at the time you leave the company.

17. You are advised to sell your shares in order to get payback of your investments into the company. As long as you were advised to include the pre-emption rights into the shareholders agreement (see paragraph 13), you will be obliged to offer the sale of your shares to the existing shareholders and then to other legal and natural entities.

18. It is also advised to amend the S.8 (1) of the Agreement (see Appendix A) by deleting the words “including any developments in the Business” and by the insertion of words “excluding the sale of IP licenses” after the words “of the Business”. This amendment will allow you to continue offering your IP licenses to other entities after leaving the company.

18. Overall, if you fully pay for your shares, you will be able to leave the company without further liabilities unless you breached the provisions in Articles and Agreement.

19. Submission 6. Your last request was to have the right to terminate the licensing agreement, in the moment of exiting the company. As long as the licensing agreement is the separate agreement with the company made under S. 6 (a) of Articles (see paragraph 4), the terms of termination (see Appendix C) should be included into this agreement.

20. However, it is important to note, for this agreement to be binding the consent of other shareholders is required.