Articles of Association, Shareholders’ Agreements and Investors’ Agreements – what’s the difference?
Below are some of the frequently asked questions relating to commercial advice that we are often asked by clients with specific issues.
Certain rules relating to data protection apply to virtually every business which is operated in the UK, irrespective of its size. If you store or process information about people electronically, you are required to register with the Information Commissioner’s Office as a Data Controller. There are some limited exceptions including storing information for internal day to day business activity such as payroll or using personal information for marketing in connection with your own business.
Once you are registered, your business will appear on a publicly searchable database. Further, whenever you use or store personal data, you must comply with the eight principles set out in the Data Protection Act 1998.
Your data protection obligations should be taken seriously and a failure to comply may lead to fines of up to £500,000 as well as reputational damage.
An idea alone does not give rise to intellectual property (‘IP’) rights. However, once your idea has been expressed in some manner, there are five main IP rights that may be relevant and which may allow protection of your business.
You may also use the law of confidential information to protect your ideas which are not otherwise protected by IP rights. For example, by asking any relevant party to sign a non-disclosure agreement. Although better than nothing, this approach can be risky. Often by the time a disclosure has been made to a third party, the damage may already have been done.
When starting a new business, it is important to develop an IP strategy from the outset. Whilst it may not seem urgent at the time, a failure to do so can be costly in the long run.
Contractual protections can make all the difference when things go wrong but a clause which limits or excludes liability should be carefully drafted if it is to be enforceable.
An exclusion of liability clause will need to be clearly written and will need to be specifically brought to the attention of your customer. Any ambiguity in respect of such clauses will be interpreted against the party who seeks to rely upon the clause: in this case, you. Further, exclusion clauses are subject to a test of reasonableness and particularly onerous exclusions or limitations of liability will not be enforceable.
Some liabilities simply cannot be limited, for example, liability arising from fraud, any personal injury caused by negligence or supplying goods without the right to do so. If your customer is a consumer, the rules are even stricter and any attempt to limit liability in relation to the characteristics of the product (such as its quality or fitness for purpose) will not be enforceable.
An indemnity is a promise to be responsible for another person’s loss on the occurrence of a specified event. For example, in a licence of intellectual property rights, the licensee may wish to be indemnified by the licensor for any losses suffered as a result of a third party claiming that the use of such rights infringes rights which they hold. Unlike a regular claim for breach of contract, there is no need to show fault and if the specified trigger event occurs, the indemnifying party automatically become liable.
Giving an indemnity should not be taken lightly. You should consider whether other contractual protections may be more suitable in the circumstances. Further, the scope of an indemnity and the extent of losses that it covers should be carefully worded.
The terms agent and distributor are often used interchangeably but they differ substantially as regards their legal interpretation. An agent is a person who acts on behalf of another party. Therefore, a customer who buys from the agent is in fact entering into a contract with the other party. On the other hand, a distributor is a customer of the other party and the end customer contracts with the distributor, not the supplier.
An agency agreement may be preferable where the other party wishes to retain greater control of how the products are sold and marketed. Such control is imposed according to the terms of the particular agent agreement. However, an agency agreement which grants such rights to another party is inherently risky, and may also involve payment of compensation on termination. In contrast, a distributorship agreement does not give the same level of control, but does pass on the risk relating to the products to the distributor and is more straightforward in terms of its regulation, termination and tax position.
When there is no express termination provision and the contract is not for a fixed term, a right to terminate on reasonable notice may be implied. In this case, you may therefore serve notice on your supplier informing them that you wish to terminate the agreement. What constitutes reasonable notice will depend on the circumstances. In determining what is reasonable, a number of factors should be considered, including: the usual practices in the market, the wording of the agreement, how regularly payment has been made to the supplier and how much the supplier depends on the contract.
The service is unlikely to have been sufficiently poor to allow you to terminate the contract immediately. Even if there was poor service, prior to such termination becoming effective, you may need to give the supplier the opportunity to remedy the breach. This is a complex area of law and you may be liable for terminating if the breach is not deemed to be sufficiently serious. You should therefore use this option with care and only after seeking legal advice.
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