Samuel Yuen, Managing Director of Yuen Law shares some practical tips for startups on the law. Yuen Law is a supporting partner for Slush Singapore.
1) Begin with the end in mind
Always begin with the end in mind, or at least, know what your (reasonable) milestones are. Knowing the end (or the milestones) helps you plan your course. It will certainly help you keep your eyes on the prize, ascertain and protect your priorities. Rome wasn’t built in a single day, so make sure you have a good and clear road map to success.
When preparing an agreement, know where your exits and escape hatches.
2) How should i incorporate my business?
Not all legal structures are the same, Start-ups come in all shapes and sizes and depending on the game plan of the founder(s) of the start-up, certain structures would have greater efficacy than others.
For instance, a sole proprietorship is the most cost-effective structure, but has no protection for the sole proprietor in terms of liability.
On the other hand, a company limited by shares (private limited) allow for a fragmentation of ownership (vital for fund raising) but may be prohibitive for the start-up in terms of administrative costs. Perhaps the answer lies in a hybridized approach that involves the adoption of different legal structures as the start-up evolves.
3) How many partners/shareholders should you have to make your start-up work?
Having co-founders certainly helps manage the stresses that a lone ranger would face, but how many is too many? Too many cooks may indeed spoil the broth. Co-founders should bring value to the start-up, either in cash or in kind. Co-founders with exemplary networks and connections are good too.
Regardless, always be clear as to the value proposition each co-founder brings to the table.
4) What do I need to know about agreements with my stakeholders?
Agreements with stakeholders (such as co-founders, employees, business associates and clients) ought to be comprehensively drafted to avoid confusion and/or arguments down the line. Managing expectations is very important for your sanity, as well as the longevity of your start-up, that you and your stakeholders are clear about your respective rights and obligations. It really helps to have these expectations set in writing.
5) Can I save costs by asking my lawyers to keep the agreements short?
While the length of an agreement is not directly proportional to its efficacy, a well drafted shareholders’ agreement that can protect your rights is likely to require quite a few pages. Don’t lose sight of the forest by focus on a tree. The focus should really be on managing your legal risks and ensuring that the terms and conditions of agreement actually match the contemplated transaction.
6) What else should a startup look out for?
As the song goes “if you like it, put a ring on it”.
Make sure you protect your assets well. Particularly, if your start-up is dependent on intellectual property rights to power its growth, make sure you apply for the right kind of protection.
Oral agreements are enforceable under Singapore law. However, the details of any oral agreement are notoriously difficult to prove under contentious circumstances. So, a stich in time saves nine. If a term is important to you, it should be important enough to commit to writing in a valid and enforceable agreement.