Major Decision Making

[TheGoodEgg]

Hello, I co-own a company (company 1) which manufactures a product, sells it and also installs it. There’s 4 x directors of company 1 who are my wife & I (52.5% shareholders combined) and two others (47.5% shareholders) who are also married. We created another company (company 2) which all four of us are equal shareholders and both wives are directors there.

Company 1 has given company 2 permission to manufacture and sell the product that company 1 designed/manufactured/sold originally in view of possibly selling company 2 in the future with all rights to the designs of the product. Company 1 could then either be sold with company 2 or could continue trading by installing a different product (in construction industry).

There’s differences of opinions between my wife & I and the other partners. The question would be can we use our 52.5% share of company 1 to officially stop with immediate effect the permission of company 2 to be able to use the designs of company 1?

Thank you in advance for any guidance.

 

[Gyumri]

Company 1 has given company 2 permission to manufacture and sell the product that company 1 designed/manufactured/sold

You want 1 to be able to revoke the contractual licence given to 2 which would firstly depend on the terms of the licence.

It sounds like the licence would not be enforceable anyway by 2 if it has not given any consideration for it.

Secondly if the board of 1 is split 50/50 then I should think that as the majority shareholders in 1 you could call a meeting and dismiss the other couple as directors if they insisted in opposing your wishes.

Either way with or without wives involved it sounds like a real pickle which @The Resolver might be able to resolve.

 

[Newchodge]

Hello, I co-own a company (company 1) which manufactures a product, sells it and also installs it. There’s 4 x directors of company 1 who are my wife & I (52.5% shareholders combined) and two others (47.5% shareholders) who are also married. We created another company (company 2) which all four of us are equal shareholders and both wives are directors there.

Company 1 has given company 2 permission to manufacture and sell the product that company 1 designed/manufactured/sold originally in view of possibly selling company 2 in the future with all rights to the designs of the product. Company 1 could then either be sold with company 2 or could continue trading by installing a different product (in construction industry).

There’s differences of opinions between my wife & I and the other partners. The question would be can we use our 52.5% share of company 1 to officially stop with immediate effect the permission of company 2 to be able to use the designs of company 1?

Thank you in advance for any guidance.

What does the agreement with company 2 say with regard to termination.

 

[hassanizhar]

it is important to review the agreements between Company 1 and Company 2 to determine the scope of the permission granted. If there is a written agreement between the two companies, you should carefully review the terms and conditions of that agreement, including any termination provisions or restrictions on revoking permission.

In general, if Company 1 has granted Company 2 permission to use its product designs, it may not be possible to immediately revoke that permission without cause. Depending on the terms of the agreement, there may be notice requirements or other conditions that must be met before permission can be terminated.

It is also important to consider the potential legal and financial consequences of revoking permission. If Company 2 has invested resources in manufacturing and selling the product based on the permission granted by Company 1, it may have a legal claim against Company 1 for breach of contract or other damages if that permission is suddenly revoked. Additionally, revoking permission could damage the relationship between the two companies and potentially harm the value of Company 1 and Company 2 if a sale is being considered.

Therefore, before taking any action, it is important to seek legal advice and carefully review the agreements between the two companies to fully understand the implications of revoking permission.

 

[TheGoodEgg]

You want 1 to be able to revoke the contractual licence given to 2 which would firstly depend on the terms of the licence.

It sounds like the licence would not be enforceable anyway by 2 if it has not given any consideration for it.

Secondly if the board of 1 is split 50/50 then I should think that as the majority shareholders in 1 you could call a meeting and dismiss the other couple as directors if they insisted in opposing your wishes.

Either way with or without wives involved it sounds like a real pickle which @The Resolver might be able to resolve.

Hi Gyrumi,

Thanks for your response. There wasn’t an agreement drawn up regarding the permission given to 2, it was just an email saying 1 gives permission to 2 to use our designs.

When you say dismiss the other couple as directors, don’t you need a larger majority of say 75% to do that or did you mean dismiss their vote on whether we revoke 2’s permission?

Thanks.

 

[TheGoodEgg]

What does the agreement with company 2 say with regard to termination.

Hi,

There’s no written agreement other than company 1 sending an email to our supplier saying company 2 can have permission to buy our designs.

Thanks.

 

[TheGoodEgg]

it is important to review the agreements between Company 1 and Company 2 to determine the scope of the permission granted. If there is a written agreement between the two companies, you should carefully review the terms and conditions of that agreement, including any termination provisions or restrictions on revoking permission.

In general, if Company 1 has granted Company 2 permission to use its product designs, it may not be possible to immediately revoke that permission without cause. Depending on the terms of the agreement, there may be notice requirements or other conditions that must be met before permission can be terminated.

It is also important to consider the potential legal and financial consequences of revoking permission. If Company 2 has invested resources in manufacturing and selling the product based on the permission granted by Company 1, it may have a legal claim against Company 1 for breach of contract or other damages if that permission is suddenly revoked. Additionally, revoking permission could damage the relationship between the two companies and potentially harm the value of Company 1 and Company 2 if a sale is being considered.

Therefore, before taking any action, it is important to seek legal advice and carefully review the agreements between the two companies to fully understand the implications of revoking permission.

Thank you very much, sounds like good advice. There’s no written agreement with any clause as it was just an email sent to our supplier giving our consent.

 

[Gyumri]

If it was just an email ie a gratuitous licence to your supplier that 2 could receive 1's designs then it can be revoked but if 2 has spent money on the designs then 1 would in fairness need to compensate 2 for any loss. If there is no loss then nothing more needs to be done except to communicate in writing to the supplier and to 2 that the permission has been revoked.

As for dismissing directors it's a simple majority of the shareholders - although this is not my field. See:

Removal of Directors | Removing a Director From a Company

Removing a company director carries legal and commercial risk. Our expert corporate solicitors can explain the process and risks. Contact us.

www.lblaw.co.uk

I think anyone can see that you need to have a good sit down meeting with all cards on the table before things deteriorate further, as it doesn't look like the foursome is working out.

 

[TheGoodEgg]

Thanks a lot, really helpful info. Apologies for misspelling your name before!

 

[The Resolver]

Although Company 1 itself may not be in breach of any contract to cease the licence to Company 2, the decision may put the OP and his wife in breach of the agreement to set up C2 for the purpose of manufacturing/selling in the first p[ace. That arrangement gave the other couple 1.5% more in ownership of the manufacturing/selling business as well as equality in decision making. There would still be a need to establish some form of consideration they gave for such an arrangement. I would need to understand the differences of opinion. Maybe the other couple were going to put money in or do certain things that they have decided now not to do etc etc. Maybe they had a difference of policy as to where to take the bsuiness. More light being shed on the reasons for disagreement will help .

Given Company 2 , despite the corporate structure, is a classic quasi-partnership (see my post yesterday https://www.ukbusinessforums.co.uk/threads/minority-shareholder-director-dispute.421899/post-3185693 ) the other couple may also be able to argue an unfair prejudice case.

It would be a huge mistake to actually sue losing all control to the judge , not to mention a fair wad of cash and delay,. This is crying out for shareholder mediation. PM me for a free advice call.