Corporate Law, M&A and IP

Question 1

What is the main purpose of corporate law?

Answer 1

• To establish a set of rules that regulate its creation and functioning
• To allocate powers and resonsibilities among contituencies, internal bodies and stakeholders (so-called corporate governance)
• To address and solve the agency problem

Question 2

What are the three principal sources of opportunism with respect to the agency problem?

Answer 2

1. Conflicts between managers and shareholders
2. Conflicts among shareholders
3. Conflicts between shareholders and other constituencies, including creditors and employees
   However, there are additional agency problems, e.g between shareholders and other stakeholders

Question 3

How does governance protect shareholders (six in total)?

Answer 3

1. Appointment rights
   * Structure of the board
   * Power to replace board members
   * Facilitating collective action
2. Decision rights strategies - supermajorities
3. Trusteeship - loyalty
4. Incentives/rewards - remuneration
5. Constraints - duty of care
6. Affiliation rights - entry/exit, takeovers

Question 4

What are mergers and acquisitions?

Answer 4

Mergers and acquisitions are business transfers, where mergers include also demergers

Question 5

What is a merger?

Answer 5

A merger is when a company merges with another. In the case of merger by absorption, the rules and authorities are decided by the absorbing entity. The exchange ratio for shareholders are decided for by the board of directors, based on the relative valuation of each company. Shareholders need to accept the terms

Question 6

What is a demerger?

Answer 6

A demerger is the opposite of a merger, i.e when a part of a company separates and becomes a separate company. The new shareholder structure needs to be declared as the conditions may vary greatly between the two (image Ferrari from Fiat)

Question 7

What is a share deal acquisition?

Answer 7

When 100% of shares are purchased from the target business and transferred to the target

Question 8

What is a asset deal acquisition?

Answer 8

When the target buys assets from the target business. In this case, the sellers are not the shareholders

Question 9

What defines the view on Intellectual Property (IP)?

Answer 9

That IP is a new set of assets called “knowledge” and “innovation”, which are key for the business strategies of enterprises

Question 10

What are the two types of assets?

Answer 10

Tangible assets - buildings, machinery
Intangible assets - know-how, brand and designs

Question 11

What are the four types of intellectual property?

Answer 11

1. Patents - protects new inventions
   * Prevents others from making, using or selling patented subject matter in that jurisdiction
   * Legal right issued by a national government or other authority
   * Only available for new, tangible inventions, not for ideas
2. Trade secrets - secure proprietary business information
   * Also known as “know-how” or proprietary information
   * Information/knowledge that gives the business a competitive edge over those who do know have access to it
   * To qualify as a trade secret it must be subject to reasonable efforts to maintain its secrecy
   * Whoever uses or spreads a trade secret without approval may face damages
3. Copyright - protect tangible forms of creative work from authorised copying
   * Available to authors or original literary, dramatic, musical, and other intellectual works
   * Valid for a specified period of time
   * Protects the work from the moment of creation
   * Violating the exclusive right of copyright is called infringement or piracy
4. Trademarks - protection of distinguising words and symbols developed and used by firms to identify their goods and services
   * Word, name, symbol or distinctive shape/design used by a manufacturer to identify its goods/services and distinguish their source from those manufactured/ sold by other competitors
   * Right of action against counterfeiters - not only for copying but also deception/confusion
   * Trademarks can be registered or de facto/unregistered
   * The rights are lost if the trademark is not used
   * The trademark needs to be distinctive enough

Question 12

What are the four conditions for a patent to be valid?

Answer 12

1. Utility - The invention must be useful
2. Novelty - The invention must be new
3. Nonobviousness - The invention must not be obvious to anyone
4. Full disclosure - The patent must in detail describe the invention