Partnership and Shareholder Disputes
The attorneys in our law firm’s Business Trial Group have a proven track record of helping clients obtain significant recoveries in shareholder and partnership disputes. We frequently represent clients in shareholder derivative litigation, including minority owners that have been victimized by shareholder oppression. The Business Trial Group is experienced at navigating the complex issues involved in disputes between business owners, partners, and shareholders.
If you believe you have a claim arising from a shareholder or partnership dispute, the Business Trial Group may be able to help. We represent clients on a contingency-fee basis, which means you do not pay any legal fees unless there is a recovery in your case. For a free case review, please call or email us.
In any partnership or corporation, conflicts will inevitably arise between partners or shareholders. Most of the time, the partners or shareholders can resolve the disagreement among themselves. Some disputes, however, may involve matters that are integral to the continued operation of the business, or present otherwise intractable differences between the partners or shareholders.
China Shareholder Agreement
Often the time international business people or investors need to jointly invest with Chinese local business entity or individual to comply with China local laws and regulations. This is why often the time a shareholder agreement is needed before international business enter into China market. In this blog article, we introduce what is a shareholder agreement in China, why you need a shareholder agreement, and why you need a lawyer to draft the shareholder agreement for you.
What is Shareholder Agreement
A shareholder agreement sets out the terms of how corporate shareholders will interact with each other and what happens if one or more want to get out of the business, or something happens that forces exit of a shareholder or shutdown of the company.
The people who buy these shares become the company’s shareholders, but it is important for the company to remember that it cannot simply take money from shareholders without granting rights in return. Because shareholders are investing their money in the shares they purchase, they have rights as investors which need to be protected.
China cease and desist letter
A cease and desist letter, also known as a C&D letter, is a legal letter that instructs a person, group, or organization to discontinue an action or program of actions that have been deemed harmful to another person, group, or organization under China law. To cease and desist literally means to stop. Generally, a letter is issued by a legal authority. When an individual must send one, it is usually worded by a China lawyer.A simple Cease and Desist order will identify the following basic elements:
- Recipient: individual or business who needs to stop the harassment, defamation, unreasonable debt collection, or copyright/trademark infringement
- Sender: individual or business requesting the recipient to stop their unlawful behavior
- Unlawful Behavior: detailed description of the behavior and why it is unlawful
- Legal Action: a lawsuit will be initiated if the behavior does not stop or continues
- Date: when the letter is being sent to the recipient
A Cease and Desist Letter is also called a Demand Letter, Violation Letter or Takedown Letter.
Why Partnership Agreement is important to Deal With Business Partnership Disputes in China
Business partnerships are like a marriage and disputes are inevitable, and wise partners will anticipate and prepare for them. The best way to handle disputes is to set clear expectations from the beginning and have a clear agreement on how to handle the disputes. Under Chinese partnership related laws, business partners have fiduciary duties and obligations. These fiduciary duties not only touch the business, but also “outside” opportunities that may be only tangentially related to the business. It is important to understand your rights and obligations in relation to your business associates and partners.
How a Partnership Agreement Helps Your Business
A partnership agreement allows you to structure your relationship with your partners in a way that suits your business. You and your partners can establish the shares of profits or losses each partner will take, the responsibilities of each partner, what will happen to the business if a partner leaves, and other important guidelines.
Common Provisions in a Partnership Agreement
Although some terms depend upon individual circumstances, standard language in a partnership agreement typically includes:
- Decision-Making Authority Delegation: Who decides day-to-day issues? What about weightier matters? Will you put decisions to a vote? If so, does the decision need to be unanimous or majority rules? If partners have equal say, what happens when there is a tie? Some silent-active partner arrangements allow a silent partner a voice about monumental matters, while giving the active partner authority over daily operations. In others, a silent partner makes no decisions. By clearly delegating decision-making authority, you may avoid potential infighting when opposing viewpoints arise.
- Capital Investments: The amount of money each partner contributes to the business should be unambiguous. If a partner is investing work equity, make sure the parties know what those duties and talents are and consider setting benchmarks to judge the progress made by the working partner.
- Profit Distributions and Salaries: Hopefully sooner rather than later, your company will turn a profit. How do you intend to divide the fruits of your labor? How much money should be put back into the business? Will you each receive an income or a percentage of the profits?
- Valuation: what methods will be used to determine the value of the business in the event of a sale, dissolution, death, disability or withdrawal of a partner?
- Buy-out clause: What guidelines should be followed if one partner wants to retire, dies or leaves the partnership? Decide if partners who leave have to sign a non-compete agreement.
- Non-compete clause: the use of such clauses is premised on the possibility that if a partner is expelled or leaves to start another business, he or she could potentially gain competitive advantage by abusing private information, trade secrets or customer/client lists, business practices, upcoming products, and copying marketing plans. The non-compete clause prevents this from happening.
- Death and Divorce: You agreed to go into business with your partner, not his/her spouse or child. Yet, a spouse or an heir may claim an interest in the company during divorce or probate proceedings. A partnership agreement can prevent intrusion by an outside party who might otherwise have legal rights to company assets.
- Dissolution: Make arrangements for dissolution before you or your partner decide to end your relationship. Otherwise, arguing over dissolution terms might burn through the profits you earned while in business together. An organized exit strategy might include buyout options or require distribution of property.
Resolve differences between partners
Going into business with a partner can be a daunting experience, as there are bound to be a number of complex questions running through your head. How well will you work together? What if you find out you have different ways of doing things? What happens if something goes wrong or the business relationship breaks down altogether?
Defenses to Trademark Infringement Claims in China
Welcome to China lawyer Blog, a top web resource on issues of trademark infringement, trademark licensing, trademark protection, and trademark registration in China. Our law firm representing trademark infringement plaintiffs and defendants in China. Recently I received quite a few question related to China trademark and IP laws. Accordingly I published a few articles on this blog on trademark and IP related matters. One of questions I received is how to respond to trademark infringement claims. In other words, how to defend yourself against trademark infringement claims. Today, I will be answering the question: What Are My Defenses to a Trademark Infringement Claim under Chinese law?
Defenses to trademark infringement allegations include: the trademark is invalid, the trademark has been abandoned, or the mark is not distinctive.
You will know if you are being subjected to a trademark infringement claim if one of several things occurs. More likely than not, you will receive what’s known as a cease and desist letter, sometimes also referred to as a threat letter. That letter will set forth the sender’s rights in a trademark, identify your unauthorized use, and also set forth why they believe that you are infringing their trademark. It is at this junction that it is important for you to retain legal counsel, preferably a trademark infringement attorney, who can advise you as to the defenses you have available.
Patent lawyers at this china law firm is regularly asked to render legal opinions on issues related to patents. A patent opinion is a comprehensive analysis of a business entity's position with respect to the patent landscape prepared by counsel utilizing the attorney's experience in intellectual property law. There are four types of opinions commonly prepared by patent attorneys: freedom to operate opinions, infringement opinions, patentability opinions, and validity opinions. Obtaining an opinion as to the invalidity of a patent may provide a defense against willful infringement. On the other hand, failure to obtain a non-infringement opinion may serve as evidence of intent to induce infringement.
There are several different types of patent opinions:
A patentability opinion advises you as to whether or not it may be worth the time and expense of pursuing patent protection. These opinions answer the questions of what possible action the patent office might take on your application and whether or not it is likely that the patent office will grant a patent for the invention claimed in your application.
Such opinions are not a guarantee that a patent will or will not be granted. Rather, they are our assessment of the likelihood of obtaining patent protection, based on our experience in these matters.
Defense Against patent infringement claim
A China patent attorney can assist with claims construction that would properly explain the meaning of the claim terms in a way that would affect the scope of the claims. Terminology used in patent claims may have a meaning that is narrower or broader than the common usage of the word. This could help eliminate the possibility of infringement in some cases. Patents can give particular definitions of words either expressly or implicitly. Also, particular technology or art areas may have designated meaning within their fields.
A patent attorney may also be able to help you assert the defense of inequitable conduct, meaning that the claimant failed to disclose relevant prior art to the China patent office during prosecution of the application. Under China patent law, it is the burden of the applicant and his attorneys to disclose relevant prior art that the applicant is aware exists. Inequitable conduct invalidates the entire patent. In order to claim inequitable conduct, the defense must cite the prior art and provide clear and convincing evidence that the claimant acted in a way to intentionally deceive the China patent office. Case law has shown that the more material the prior art, the more that intent may be presumed. With intent being more difficult to prove, the emphasis is generally placed on proving that the omission or misrepresentation was significant.
Defense against an alleged patent or utility model infringement is possible by the following arguments:
- The scope of the claims does not cover the distributed product or offered service.
- Right to use the invention based on own prior use in China.
- The subject matter of the patent or utility model is not novel and/or not based on an inventive step.
- If none of these arguments applies, a solution circumventing the claims of the patent has to be found (walk around).
When a client receives a cease and desist letter asserting a patent, the way forward can seem daunting. Defending patent litigation can be quite expensive, and the time and energy the defendant spends may be of even more value than the money. A thorough, efficient defense requires our China Patent lawyer who has experience both as a patent owners’ attorney in litigation as well as on the defendant’s side. Understanding the strategies of both sides is important. Our firm has that experience.
Enforceability of non-compete under Chinese law
As in other countries, non-competition covenants in China are seen as a restraint on trade and are not favored by the courts, particularly if drafted by the employer and not negotiated between the parties. Enforcement of non-competition clauses results in a balancing of the employer’s legitimate protectable interest(s) against the hardship imposed upon the employee by the restriction upon the employee’s ability to work. As experienced China lawyer in the field of non-compete agreement, we share our insights below.
There are two situations where a company typically encounters a non-compete: (1) when it has a valuable employee, information or contacts it wants to keep within the organization; and (2) when a new potential hire arrives with a non-compete that may restrict his/her ability to work for the company. In either case it is important to understand the fundamentals of how to use a non- compete agreement and when to avoid a potential employee who has one.
Consideration for non-compete
One indispensable component of an enforceable non-competition clause is that there must be adequate consideration for the employee to enter into the agreement. For a new employee, that consideration can be the job itself. Pennsylvania courts have uniformly determined that adequate consideration exists for restrictive employment covenants that are part of the formation of the employment relationship.