Simon Says: How to be a shareholder without paying a penny
This is the fourth in a weekly series of legal advice provided in a short and entertaining story format.
This week's areas of Interest: Company, Corporate or Contract Law
This week's keywords: Business and Corporation Law, Laws of Corporation, Shareholder, Investment in Kind.
How to be a shareholder without paying a penny
Watch this introductory video first and/or read the complete story below before seeing what "Simon Says"
Alex has been good friends with Ken since college. After graduating, Alex went on to further his studies and finished his doctor’s degree a few years later. He went back to his university to teach as a professor and continued research on deep sea mining. It was a major success, and within three years, he had developed new technology on the drilling of oil.
Ken, on the other hand, worked in his father’s company after he graduated. His father owned a Chinese oil company and Ken took over with great success.
The two old friends met up one night for a drink.
Alex: ‘How is business going?’
Ken: ‘Doing great, man. Our oil drills in Alaska are making us huge money. The demand for oil is going up, so prices are shooting up too. We are thinking of deep sea drilling in the Gulf Coast.’
Alex: ‘Wow, the price of deep sea drilling is extremely high. Every barrel extracted there costs like 50 dollars! That is fourfold of Alaska! How can you turn a profit?’
Ken: ‘Yeah, that is exactly the reason I asked you out tonight. I bet you have the technology. You can drive costs down.’
Alex: ‘My technology is very expensive. How much do you plan on paying me?’
Ken: ‘We can't give you a lump sum right now, but I have a better method. You shall hold a percent of our company shares, so when we turn a profit, you get your dividend. This is the best way, as we are not sure exactly how much your technology can bring for us.’
Alex: ‘Good idea. Let’s get it done.’
Will this work?
Prof Simon Says:
The above solution is totally feasible and a win-win for both parties.
It is possible for one to be a shareholder of a company by providing technical skills. Technical skills, as in the form of contribution in kind, can be valued by a qualified appraiser at a price to be agreed by the parties as capital.
Alex can get shares of the oil company without actually paying a penny, while Ken can earn more in the long run by reducing costs in deep sea mining due to the new technology provided by Alex. His company does not need to pay a lump sum to Ken as well, and this amount of money can be reinvested back into the drills for the Gulf Coast project.
For more about this or to contact Professor Simon Choi at www.acmeardent.com, email@example.com, +86 13823677853 or by WeChat: simonhkchoi.
"This article was originally written in Chinese by Mr Huanyu Li and rewritten into English by Simon Choi."
About the Author: Professor Simon Choi
Prof Simon Choi, solicitor and linguist, is an international lawyer, qualified to practise law in England & Wales and in Hong Kong, China. Simon graduated from law schools of the Peking University, the University of London and the University of Hong Kong respectively, with an in-depth knowledge of Chinese laws and common laws and with more than 20 years experience in China practice and international trade, investment, finance, merger & acquisition. He is an adjunct professor of laws at the Zhongnan University of Economics and Law. Simon is the founding partner of Acme Ardent and can be reached at firstname.lastname@example.org or +86 13823677853.