#Asia 7 essential legal tips for startup founders


Simmonds Stewart partner and regular e27 blogger Lee Bagshaw gives us seven legal tips for founders to think about when they kick-off their businesses

Contract signing

Finding cost effective start-up advice from experienced VC lawyers in the region is not easy. Help is on hand, however. New Zealand-based boutique technology law firm Simmonds Stewart has announced that the team is opening an office in Singapore to help serve existing tech startup clients across Southeast Asia.

Here are seven tips for startup founders to consider when starting a business.

1. Where to domicile your business

When starting out, one of the first things you need to think about is where to incorporate. VC funds and other investors will invest in businesses operating in all of the emerging markets in the region, but prefer a safe place to put their money.

In Southeast Asia, that generally means Singapore. It makes sense to incorporate in Singapore from the outset if you can, rather than have to flip your company there later on.

2. Group structure

Even with a Singapore holding company, you may have group companies in other countries in the region (e.g., where the business actually operates). Investors like to see a clear group structure in terms of ownership.

Also check that all local law capital requirements have been satisfied. If you have any kind of group structure, expect increased investor due diligence and pre-closing conditions when you get to a financing round.

3. Record keeping

Sloppy record keeping can make you look disorganised when talking to investors. And this can cost money to sort out. So get on top of statutory accounting and company secretarial record-keeping.

In addition, retain an up-to-date cap table, which records the current share, option and convertible note holders. Plus an electronic due diligence file, containing indexed copies of all company documents that potential investors will to want to see during due diligence, will be useful.

Remember you could raise capital multiple times, which might require the company to issue different classes of shares to investors. You may also want to issue convertible debt or adopt an employee incentive plan.

A fair bit of company secretarial paperwork is therefore required, so engage a corporate secretarial provider experienced with working with VC-backed start-ups.

4. Governance documents

Start-ups planning to raise capital can perhaps hold off entering into a shareholders’ or founders’ agreements. Most incoming investors will want you to adopt a new shareholders’ agreement anyway to protect their interests when they invest.

For start-ups not looking to raise capital for a while, a shareholders’ agreement remains a good idea. It can help set out how your company is governed and run to counterbalance the majority rule. Plus, it can include helpful restrictions on share transfers and new issues.

You might consider including tag and drag provisions, so that a minority shareholder does not end up stranded when a majority of shareholders want to sell to a third party (tag along), and so that a minority shareholder cannot block a sale of the whole company (drag along).

5. Founder arrangements

Founder vesting arrangements could be valuable from an early stage. These protect the company if a founder moves on – which does happen in start-ups. Those shares held by the exiting founder could be vital to allocate to investors or to new hires in the future.

Under a founder vesting arrangement, a founder who leaves the company within a set period (typically two or three years) forfeits some shares back to the company or even to the other founders at a nominal price.

6. Employees and contractors

Early on, these arrangements are often overlooked. Putting in place employment and contractor agreements is a good idea, however. These typically include intellectual property (IP) assignment, non-competition and confidentiality provisions.

These kind of provisions contribute toward protecting your tech and IP – something investors will be very interested in when you come to raise capital. Such agreements also set out clearly when you can terminate the relationship if things aren’t working out.

Employee share option plans, or other incentive schemes, are common for start-ups as a means of retaining and incentivising key staff when cash is tight. You might prefer to hold off putting this in place, however, until you have closed a financing round as the structure involves a bit of thought.

7. Contracts

Startups all have very different business models and markets, so there is no defined list of what you must put in place. When cash is short, and you are still developing your MVP, you can probably make do with relatively simple templates for items such as your terms and conditions.

Fortunately, there are increasingly available free-to-download templates for companies operating in the services, web, software and digital spaces to get you going.


Lee Bagshaw is a corporate lawyer at boutique technology law firm Simmonds Stewart.  He advises investors and start-up companies on venture capital and tech M&A transactions across Asia Pacific.

The views expressed here are of the author’s, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested in sharing your point of view, submit your post here.

Image Credit: bacho12345 / 123RF Stock Photo

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