A good startup lawyer can help you avoid major pitfalls that will be costly and potentially even lose your company. Here are a few reasons why you should get a startup lawyer as soon as possible for your startup (and even before you form a company).
Dealing with the government or the regulator
Depending on your business model, your startup may or may not fall within regulated space and also the location of your company’s jurisdiction. As a general rule, existing rules and laws applicable in regulated industries such as healthcare, financial services, transportation will also apply to your startup if your company is involved in any of these regulated industries.
In other words, it may be easier to get a business off the ground if your industry is not heavily regulated such as photography or management consulting services.
Whether you like it or not, gone were the days where you can “move fast and break things” like the old Silicon Valley mantra. So having a good lawyer involved while you’re sorting out your MVP may be a good idea so that you don’t get into trouble and may even get fined or penalised for breaking the law.
For example, let’s take a look at the fintech space. If you are involved in the fintech space, you should check with a local fintech lawyer on your company’s relevant regulator. For instance, if you are in Singapore, there is only one relevant fintech regulator which is the Monetary Authority of Singapore.
But if you are in Malaysia, there can be two potential regulators involved (so you need to know which one to choose and engage based on your business model) namely the Securities Commission of Malaysia (the regulator in charge of the capital market) or the Central Bank of Malaysia (the regulator for financial services). A good corporate lawyer can help you pinpoint the actual regulator that you should speak to so that you can get the necessary regulatory approvals to get your business off the ground.
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Before going straight for a meeting with the regulator, you should get a local legal counsel to highlight the key legal or commercial issues to look at on your business model or your draft application. A good counsel with strong previous working relationships with the regulator can also prepare you before the meeting by highlighting key regulatory issues that usually get asked to address them during the meeting.
Sometimes, your business or startup may not require a specific licence or regulatory approval to start your business. For example, operating a donation or reward crowdfunding does not require Malaysia’s licence, unlike equity crowdfunding or peer to peer platforms.
Regulators are usually busy people and have no time for trivial stuff like validating your business model and so on. You can avoid unnecessary consultations that can be fixed with an initial meeting with a local fintech lawyer.
Dealing with third parties and the public
Before you get your product or service to the market, you need to make sure that you have managed the risks and potential liabilities that may arise from anyone using the product or service offered to the market.
You must map out carefully the stakeholders involved in your business models like customers, suppliers, users, employees and even the usual people on the street that may end up using your product or service.
Dealing with other people within your company
When starting a new company, you may have a cofounder. Usually, different cofounder may bring other skills to the company since you may not necessarily possess all the business acumen to succeed.
A good example is when you are fundraising for your company. You’ve been pitching for a while now, and you finally got an investment term sheet from potential venture capital. This may be the best time to get a corporate lawyer involved. A good lawyer can help you highlight the term sheet’s commercial terms and tell you if they are standard and industry practice.
In my experience, I’ve come across startups that only get help when they’ve signed the term sheets! Of course, an investment term sheet may not necessarily be bin. Still, it can also create a negative impression with the investor at even a possible start of a long relationship. Imagine if you are the investor as well. It can be annoying and frustrating, and the investor may even walk away from the deal.
Here’s a bit of free advice. Take the investment term sheet seriously as even an actual definitive agreement. Get a lawyer as soon as possible even at the term sheet stage!
Another usual scenario where you should get a lawyer is to engage someone to help you with your company. For example, you need to get your first version out to get market feedback for your MVP. You’re a domain and subject matter expert in your industry but needed a developer to get it off the ground.
After asking around, you found a developer that has agreed to come on board in your company. She agrees to join so long as you make her a technical cofounder or a CTO in your new company. In return for her product development and technical expertise, she has agreed to contribute her time to the company to exchange shares.
Both of you decided to agree verbally and not put this in arrangements writing. Six months later, the newly appointed CTO got a better offer and decided to leave your venture to take up a new role and wish you all the best.
In this scenario, if it’s a bad break up, you may not even get her to sign the necessary assignment of her work like the source code which may have meant for the company. This is usually a “red flag” for venture capitals when you don’t have a clear intellectual property assignment, so we don’t know who actually owns the software?
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Everyone who contributes to the company like employees, independent consultants, contractors or even advisers needs to sign a confidentiality and assignment agreement. This protects confidential information like customers’ personal data and valuable intellectual property like source code assigned to the company ownership. These are some of the usual examples of why you should engage a lawyer as soon as possible.
Where can I find a good ‘startup lawyer’?
A ‘startup lawyer’ is usually a corporate or commercial lawyer that also advises early-stage companies or startups. They are usually attached to large or medium-sized law firms or even a sole proprietor that runs their own solo practice. The best way to find them is by engaging your local ecosystem agency responsible for promoting startups or even your startup mentor for a referral.
More and more corporate law firms are also offering “startup-friendly” packages. Just take note that your family divorce lawyer aunty is not a corporate lawyer. Get an upfront fee quote so that you know the legal fees and what you’re paying the law firm, including the scope of work before you onboard a lawyer for your company.
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