The Next Alexa? Surfing the IP Challenges for Artificial Intelligence
13 September 2018
Directors and NEDs possess power which needs regulating to channel the business in the way shareholders expect. With the right agreement both shareholders and the director can benefit. We work with employers and investors to secure the position. We also work with directors individually to confirm their position and provide guidance.
The common law is deficient in the regulation of directors. A bespoke director service agreement plugs the gaps. If the relationship is not working out it makes resolution much easier. In practice the director or NED agreement needs to be looked at in conjunction with the articles and shareholders’ agreement.
The board’s demographics and voting rights can change the course of the business without your control. Unless specifically stated, all directors have one vote. There are alternatives. It is possible to confer a director with a casting vote. The use of a casting vote prevents a deadlock at board meetings.
Without specific restrictions in the director service agreement, a director can hold multiple appointments. Multiple appointments are common amongst NEDs. The service agreement can restrict the director or non-executive director’s activities.
The director’s service agreement should deal with pay and bonus provisions. The permutations are wide. Based on our experience key areas to consider are:
The director does have various fiduciary duties which are implied into any director or non-executive director’s service agreement. The problem is the implied terms are limited. There are duties set out under the Companies Act but they are difficult to enforce in practice.
The duty of confidentiality is not implied by law. Special protection is usually required under the director’s service agreement.
To protect the intellectual property in matters such as: the database, clients, products, designs and copyright specific contractual agreements are necessary. The director’s of a company who do not protect the intellectual property will be criticised. The company’s exit will be jeopardised if directors’ do not have suitably drafted agreements with IP clauses.
There is a balance to be drawn between the right of a director to earn a living and the right of the employer to protect itself from unfair competition when the director leaves. Employment documentation clauses which do not hit the fine balance may be unenforceable. We are up to-date with this fast moving area of employment law.
The general rule is: the longer the notice period, the longer the director can be kept out of the market following termination. However, this increases dismissal costs.
Depending upon seniority, notice periods of 6-12 months are not uncommon. The risk is the director claims a breach of contract, which would make the post termination restrictions unenforceable.
We recommend the company reserves a power to sign on behalf of a director. We draft these powers into the director’s service agreement and explain when you use them. A power of attorney is particularly helpful in cases where there is a forced transfer of shares following resignation.
There are no legal restrictions on the award of shares to directors. There are complex tax considerations. The tax treatment of share awards varies depending upon the nature of the award:
In many companies it will be necessary to seek shareholder approval for the dilution of shares – an area on which we frequently advise.
We deal with:
If a director resigns, there can be the following issues:
There are two broad situations: voluntary and forced resignation.
The duties owed by a director to the company are the same for all directors and the law does not distinguish between NEDs and other directors.
There should be a letter of appointment covering: