The Constitution of a company is its governing document and regulates the internal management of a company. In certain cases it will co-exist with a shareholders’ agreement between the shareholders.
The Constitution is a document of public record and members of the public are able to obtain a copy from the Companies Registration Office. A company’s first Constitution must be filed at the Companies Registration Office as part of its incorporation application.
Whilst a company’s first Constitution can be a very simple short form document, over the course of a company’s life, it would not be unusual for a company to amend its Constitution by resolution of its members from time to time as required. For example, the Constitution may be amended to provide for different classes of shares with different rights attaching to such shares or an investor investing in a company may require the insertion of certain key provisions designed to protect their interest in the company.
In addition, to the Constitution, the Companies Act 2014 contains a number of optional governance provisions which may be incorporated by reference into a company’s Constitution.
Whereas the Constitution of a company is a document of public record, the shareholders’ agreement is a private document by and amongst the shareholders and the company.
Where an investor is investing in a company, provisions relating to the subscription for shares by such investor may also be included in this agreement. The shareholders’ agreement will often contain provisions relating to the composition of the board of directors, certain matters which are reserved for director or shareholder approval, provisions relating to the payment of dividends by the company and the maintenance of a business plan, provisions relating to the transfer of shares (including offer round provisions, drag along and tag along rights), provisions relating to information and access to company information by shareholders, provisions relating to the protection of the company’s goodwill, intellectual property, dead lock provisions, shareholder default provisions and realisation provisions.
Where an investor is subscribing for shares in the company, then this agreement will also contain warranties to be given by the company (and in certain cases by certain of the existing shareholders) as an inducement for the subscription. In these cases it may be referred to as a Subscription and Shareholders Agreement.
A shareholders’ agreement may also contain “bad leaver” provisions which might apply to certain shareholders whereby, if they cease to have a connection with the company within a number of years or if they leave the company in circumstances in which they are not a “good leaver”, they will be required to sell back their shares in the company at a pre-determined price which may be less than the market value.
Non-Disclosure Agreement (NDA)
A non-disclosure agreement is particularly important for a company as a mechanism for protecting its confidential information. Where a company intends to collaborate with a third party it should be vigilant in terms of the confidential information that it is disclosing to such third party.
The NDA seeks to set the parameters and govern the disclosure of confidential information by either party to the other and it typically contains undertakings by each party to only use such confidential information as required for the proposed relationship and to only disclose such confidential information to such of its personnel as is required. E
Even where an NDA is in place it is still advisable that confidential information is only disclosed on a need to know basis and that furthermore any information which is confidential to the company is marked as being such prior to disclosure. Where information being disclosed to a third party is highly confidential to a company, it is advisable that a statement is made to the effect that such information is being disclosed subject to the terms of the NDA.
Intellectual Property (“IP”) Assignment
A company’s IP can be quite often its most valuable asset and this is certainly the case for a technology start up. Therefore, it is vital to have agreements in place at the outset documenting the ownership of IP developed for the company.
It is advisable to put in place an IP assignment agreement in the case of any individuals who develop IP prior to becoming employees of the company. It is also important that consultants, researchers, etc. who carry out work for the company assign the rights in any IP that they have developed for the company to the company.
It is crucial in any IP assignment agreement that the IP is detailed in a sufficient, clear and identifiable manner to ensure that any such assignment of IP is effective.
As a company grows, so will the number of its employees and it is important that the employment terms are documented in a written agreement. The Terms of Employment (Information) Act 1994 provides that all employers must provide an employee with a written statement of the main terms and conditions of employment within two months of the date of commencement of employment.
The written statement must contain, at a minimum, the following information:
- The names and addresses of the employer and employee;
- Place of work
- Job title and nature of work
- Commencement date, duration and probationary period
- Working hours and rest periods
- Annual leave and public holiday entitlements
- Protected leave entitlements
- Paid leave
- Incapacity for work/sickness/sick pay (if any)
- Pension and pension schemes
- Relevant collective agreements
- Grievance and disciplinary procedures.
Where a particular employee will be developing IP as part of their role, it is important to include clauses regarding confidentiality and the ownership of IP to ensure that all such IP is owned by the company and to ensure that the company’s confidential information remains confidential.
Where suitable, non-complete and non-solicitation provisions can be included in the employment agreement to protect the company’s interests once an employee has left the company.
Letter of Appointment of Non-Executive Director
A company may wish to appoint a non-executive director to its board of directors. A non-executive director is an independent person who is not employed by the company or generally involved in its day-to-day business but rather can offer expertise and guidance to directors in respect of particular areas.
A non-executive director will generally be contracted to dedicate a number of hours per week/month to the company, to include attendance at board meetings, the annual general meeting of the company and site visits to the company during the term of the agreement.
To protect the interests of the company and its business the non-executive director may be the subject of non-compete and non-solicitation restrictions during and following his tenure as a director of the company.
Informal Agreements and Arrangements
It is an important and prudent practice to document in writing all agreements and arrangements to which a company is entering and this is a habit that should be started at the outset. This is particularly important in respect of IP that is being developed by persons who are not already subject to an agreement that documents the ownership of developed IP (e.g. under an employment agreement or consultancy agreement with the company).
Also the payment terms for any services should be documented carefully – avoid the promise of a stake in the company to collaborators and service providers, even if this may be tempting in early stages when finances may be tight.