Business Contracts What is our best option here?

aussiemcgr

New Member
Jurisdiction
Florida
We have a bit of a strange problem that we're seeking a little bit of guidance on. Here is the story:

Software Company A (SC-A) was recently bought out by Software Company B (SC-B). As part of the buyout, some of the assets of SC-A that SC-B doesn't want is being moved into Software Company C (SC-C). Myself and a few others will be in control of SC-C and it will cut all ties with SC-A and SC-B. One of the products that SC-C is taking over (I'll just refer to it as "Product" here) is owned by a Shell Corp (I'll refer to it as "SHELL"), which is owned by SC-A. When developing the Product, we had a subject matter expert who was heavily involved from both a knowledge point of view as well as marketing and sales (I'll refer to the subject matter expert as "Individual" here). We (the owners of SC-C) have a very good existing business relationship with the Individual.

When the divestiture process started, SC-A was under the impression that they owned the Product in its entirety. We (SC-C) met with the Individual to talk about the future, at which point he claimed he owned 50% of the Product and said he had a contract to prove it. We asked him to send us a copy of it so we could better understand what sort of deal was made between SC-A and the Individual. The previous CEO of SC-A (who is not part of the buyout) has not been very upfront about things, so all we knew about was what the rest of SC-A knew. A few days later the Individual sent the Joint Venture contract over to SC-A in an email where he was accusing SC-A of trying to give his "ownership share" away to SC-C. The contract mentions a Joint Venture for the Product, but no reference to SHELL. Lawyers for SC-B are now reviewing the Joint Venture contract, but we (SC-C) have been assured that regardless of what happens, we will at least get the 50% that SC-A owned. The Joint Venture contract that exists is extremely badly written, and the previous CEO claims the contract doesn't even hold up anymore, but we're going to let lawyers determine that.

Since we have a good relationship with the Individual, we would like to continue to work with him on the Product and we are prepared to give him 50% of it. Due to how poorly written the existing Joint Venture contract is, we want to scrap it entirely and create a new contract between the Individual and SC-C. What we are unsure of is what the best approach to this would be.

Option 1 would be to just create a new Joint Venture agreement, but the Individual seems certain he wants proper equity, which to our understanding the Joint Venture agreement doesn't really give him. It seems to be strictly profit sharing, opposed to ownership.

Option 2 is something that we've discussed internally, but we aren't sure if it is legally possible. Basically, we want to keep the Product in its own LLC separate from SC-C. So we had the thought of maybe creating a subsidiary of SC-C, which would own the Product. SC-C would own 50% of the subsidiary, and the Individual would own 50% of the subsidiary. That would give him the proper 50% equity he seems to want. However, we've been unable to determine if it's even possible to form a subsidiary where SC-C owns 50%. We've seen conflicting information online of whether or not the parent company has to own "at least 50%" or "greater than 50%".

So, the main questions we have are: is Option 2 even a thing we can do? Is there some benefit to Option 1 that we are not seeing? And is there some other angle here that we are not seeing, or is there something that we need to be aware of that we are not considering?
 
We have a bit of a strange problem that we're seeking a little bit of guidance on. Here is the story:

Software Company A (SC-A) was recently bought out by Software Company B (SC-B). As part of the buyout, some of the assets of SC-A that SC-B doesn't want is being moved into Software Company C (SC-C). Myself and a few others will be in control of SC-C and it will cut all ties with SC-A and SC-B. One of the products that SC-C is taking over (I'll just refer to it as "Product" here) is owned by a Shell Corp (I'll refer to it as "SHELL"), which is owned by SC-A. When developing the Product, we had a subject matter expert who was heavily involved from both a knowledge point of view as well as marketing and sales (I'll refer to the subject matter expert as "Individual" here). We (the owners of SC-C) have a very good existing business relationship with the Individual.

When the divestiture process started, SC-A was under the impression that they owned the Product in its entirety. We (SC-C) met with the Individual to talk about the future, at which point he claimed he owned 50% of the Product and said he had a contract to prove it. We asked him to send us a copy of it so we could better understand what sort of deal was made between SC-A and the Individual. The previous CEO of SC-A (who is not part of the buyout) has not been very upfront about things, so all we knew about was what the rest of SC-A knew. A few days later the Individual sent the Joint Venture contract over to SC-A in an email where he was accusing SC-A of trying to give his "ownership share" away to SC-C. The contract mentions a Joint Venture for the Product, but no reference to SHELL. Lawyers for SC-B are now reviewing the Joint Venture contract, but we (SC-C) have been assured that regardless of what happens, we will at least get the 50% that SC-A owned. The Joint Venture contract that exists is extremely badly written, and the previous CEO claims the contract doesn't even hold up anymore, but we're going to let lawyers determine that.

Since we have a good relationship with the Individual, we would like to continue to work with him on the Product and we are prepared to give him 50% of it. Due to how poorly written the existing Joint Venture contract is, we want to scrap it entirely and create a new contract between the Individual and SC-C. What we are unsure of is what the best approach to this would be.

Option 1 would be to just create a new Joint Venture agreement, but the Individual seems certain he wants proper equity, which to our understanding the Joint Venture agreement doesn't really give him. It seems to be strictly profit sharing, opposed to ownership.

Option 2 is something that we've discussed internally, but we aren't sure if it is legally possible. Basically, we want to keep the Product in its own LLC separate from SC-C. So we had the thought of maybe creating a subsidiary of SC-C, which would own the Product. SC-C would own 50% of the subsidiary, and the Individual would own 50% of the subsidiary. That would give him the proper 50% equity he seems to want. However, we've been unable to determine if it's even possible to form a subsidiary where SC-C owns 50%. We've seen conflicting information online of whether or not the parent company has to own "at least 50%" or "greater than 50%".

So, the main questions we have are: is Option 2 even a thing we can do? Is there some benefit to Option 1 that we are not seeing? And is there some other angle here that we are not seeing, or is there something that we need to be aware of that we are not considering?

You need to speak to an attorney to assist you with this. Said attorney can review all of the facts of the matter and give you an informed opinion.

Good luck.
 
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