• Conflict of interest on selling of service between two companies of which I am directors of

Hi,
I am the CEO of a Hotel company, the board has 4 directors. I have also started a tech company of which I am the sole director. Now my second company is supposed to provide IT solution to my first company, i.e, my second company's client is supposed to be my first company and there is no exclusivity clause, so hypothetically I can sell IT services from my second company to other clients too though nothing as such is planned as of now. 

Can you point out that if there are any legal hurdles to the whole functioning of this process?
Asked 4 years ago in Business Law

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9 Answers

Hi, there can be no hurdles of the consent is obtained from other board directors in relation to services rendered between two companies ( MOU)

Hemant Chaudhary
Advocate, Gurgaon
4619 Answers
67 Consultations

4.9 on 5.0

You cannot carry on any business during course of your employment

2) in event your organisation discovers that you are running another organisation your services woukd be terminated forthwith

Ajay Sethi
Advocate, Mumbai
87976 Answers
6207 Consultations

5.0 on 5.0

Dear Sir,

Since there is no clause restraining any of the director of the first company, as such your activities through second company for legal and cannot be restrained. If other directors of first company to restrain your company then they have to amend the clauses in articles of association and/or memorandum of association.

Kishan Dutt Kalaskar
Advocate, Bangalore
6050 Answers
381 Consultations

4.8 on 5.0

1. Proper MOU between the Two companies, supported by BOD resolutions of BOTH companies, will remove any conflict of interest or whatever.

2. Just ensure that the common directors in both companies, do not propose or second or take part in the said BOD resolutions.

Keep Smiling .... Hemant Agarwal

Hemant Agarwal
Advocate, Mumbai
5612 Answers
25 Consultations

5.0 on 5.0

No hurdle your tech company can make a legal contract with the second company to provide them with the solutions of technology and consideration of same can be paid in the accounts of company there shall be no issue as such.

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

If both the companies are different entities and do not have any relationship other than the business agreement between both and the directors are related to each other, there should not be any impediment for the second company to sell their products to other prospective clients,

There is no restriction on this especially if either of the company is controlled by the other company.

Both the companies will be having their own articles of association or memorandum of association, which is not inter linked or interdependent, hence there can be no restriction or impediment in the process of business of each company on its own.

T Kalaiselvan
Advocate, Vellore
78133 Answers
1543 Consultations

5.0 on 5.0

Your understanding is absolutely right.

In the first company the decision to purchase the products from the second company shall be taken by a decision taken in a meeting by passing resolution as per the AOA or the agenda of the meeting or whatever procedures followed for buying the products from a company outside.

There will be no legal infirmity if the first company decides to buy the products from the second company which is purely owned by you.

T Kalaiselvan
Advocate, Vellore
78133 Answers
1543 Consultations

5.0 on 5.0

Yes it is absolutely correct , till the time there is no malpractice this is absolutely correct as companies are separate legal entity.

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

Your understanding is correct

Also please check whether in your appointment letter there is a clause that during your course of employment you shal not carry on any other business

Ajay Sethi
Advocate, Mumbai
87976 Answers
6207 Consultations

5.0 on 5.0

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