Shareholder Rights, Hidden Defects, and Business Structures
Shareholder Rights in Transformations
The right of separation informs shareholders of major company changes, allowing dissenters to exit with compensation. Capitalist structures involve increased regulation, defined voting rights, clear exit strategies, and structured profit distribution. Personalist structures offer less regulation and more flexibility, granting influence in management decisions but restricting exit rights and tying profit sharing to partnership agreements.
Hidden Defects in Sales and Purchase Agreements
Hidden defects are non-visible flaws present at the time of sale, significantly impacting use, value, or safety. Sellers are legally obligated to disclose known hidden defects. Breaching this by delivering non-conforming goods grants buyers warranty rights: repair/replacement, price reduction, return and refund, or damage compensation.
Freedom of Commerce and Its Limits
Freedom of commerce allows businesses to trade with minimal interference, fostering competition and innovation. However, laws ensuring public order, consumer protection, and fair competition impose limits. Examples include regulations on drug trade, gambling, and safety standards.
Distribution vs. Agency Agreements
Agency Agreements: Agents promote products and conclude transactions for a commission. Principals are liable for agent actions, while agents assume no risk.
Distribution Agreements: Distributors buy and resell products in specific areas, ensuring supply and quality. They assume commercial risks and are liable for damages.
Joint Ventures: Advantages and Disadvantages
Joint ventures involve parties collaborating towards a shared business objective, pooling resources, risks, and profits.
Advantages: Shared investment, risk mitigation, combined expertise (e.g., market knowledge).
Disadvantages: Shared management can lead to control loss and conflicts, cultural differences, and shared benefits.
Preventing Share Sales in Joint Ventures
Joint venture agreements can include Right of First Refusal and Approval Clauses to prevent share transfers without consent, ensuring existing partners have the first offer and requiring prior written consent for any sale.
Acquisition Process
- Preliminary Stage: Define the purpose, valuation, and ensure confidentiality through NDAs and Letters of Intent.
- Due Diligence: Assess the target company (legal, financial, operational, environmental, HR) and compile a full report.
- Assessment and Negotiation: Negotiate SPA clauses, conditions precedent, material adverse effects, representations, warranties, and indemnification.
Branch vs. Subsidiary
Branches: Extensions of the parent company with direct control and fewer regulatory requirements, but sharing liability. They incur high operational costs but retain all profits.
Subsidiaries: Independent entities with their own legal identity and limited liability. They comply with local regulations, offering greater flexibility and protection despite complex setup.
Joint vs. Joint and Several Liability
Joint Liability: Shared decisions, equal authority, requires agreement on actions, risk of deadlock.
Joint and Several Liability: Independent actions, full responsibility, each party can act alone, greater flexibility.
Sales and Purchase Agreements: Key Clauses
Conditions Precedent: Stipulations (e.g., regulatory approvals, third-party consents) to be met before closing the sale.
Representations and Warranties: Seller’s statements of fact about the target company (e.g., legal compliance, financial accuracy) assuring the buyer, with indemnification for false statements.
Contract Object Requirements
The object of a contract must be lawful, definite, possible, and provide clear value. It must be specific enough for performance, within the parties’ control, and not contrary to public policy or morals.
Ordinary Merger vs. Merger by Absorption
Ordinary Merger: Companies combine, dissolving to form a new entity (e.g., Disney and Pixar).
Merger by Absorption: One company absorbs another; the absorbed company dissolves, and the absorbing company continues (e.g., Facebook and Instagram).
Resolving 50/50 Deadlocks in Joint Ventures
Mechanisms include casting votes by independent directors, Russian Roulette (one partner offers to buy the other’s shares), Texas Shoot-Out (sealed bids), and mediation/arbitration by an independent third party.
Governing Bodies and Their Differences
Board of Directors: Sets policies and strategic direction.
Executive Committee: Manages daily operations.
Shareholders’ Meeting: Votes on major issues and elects the board.
These bodies differ in responsibilities and involvement levels.