The formation of a company can often be a marriage of convenience between a party with technical knowledge (or ideas) and investors. Problems can arise when the parties later fall out and it is at that time that a shareholders or joint venture agreement can be crucial.
In the recent High Court case of Fletcher -v- Davis & Another , the claimant had had the ideas but not the capital to get a business going. On the basis of an informal arrangement, he set up a company with the first defendant to carry forward his ideas - which involved a new way of presenting advertisements on the Internet. The launch of the company's website coincided with a falling out between the parties and the claimant ultimately issued proceedings for damages for wrongful removal as a director and breach of an alleged shareholders agreement together with a claim for reimbursement of company debts that the claimant claimed to have paid.
The court held that there was no agreement and no contract of service so that the claimant's claim for damages would fail on both points. The claim for reimbursement was, however, allowed.
This case shows the importance of having a properly constructed agreement before entering into any kind of joint venture. It is essential to take all possible problems into consideration before committing yourself, otherwise it the worst should happen, you may find that you are left without a remedy.
Please contact our Company Commercial department for advice and assistance on starting up in business.