Obviously, I am biased for saying this, but you should get a lawyer as early as possible before you start a company. A good startup lawyer can help you avoid major pitfalls that will cause you to lose your company. Here are a few reasons why you should get a startup lawyer as soon as possible for your startup.
Dealing with the government or the regulator
Firstly, your startup may or may not fall within regulated space, depending on your business model. Generally, existing regulated industries like healthcare, financial services, transportation will also apply to your startup.
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 minimum viable product (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 may be regulated either by the Securities Commission of Malaysia or the Central Bank of Malaysia. 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.
For example, in 2020, Malaysia Digital Economy Corporation (MDEC), a government agency promoting the digital economy launched the Fintech Booster programme with the Central Bank of Malaysia, Malaysia’s central bank. The idea is to get aspiring fintech companies to engage legal counsels and advisers before engaging the regulator to get the necessary approvals (I am happy to say that Izwan & Partners is also involved as a legal partner starting this year). It’s a great programme, and I suggest you take a look at their offering.
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
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 just walk away from the deal.
Here’s an advice, take the term sheet seriously as even a 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 in the company.
Both of you decided to just 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?
Everyone who contributes to the company like employees, independent consultants, contractors or even advisers needs to sign a confidentiality and assignment agreement. This is to protect confidential information like customers’ personal data and valuable intellectual property like source code assigned to the company ownership.
Of course, they are many more reasons and examples of why you should engage a lawyer as soon as possible. And they are many good startup lawyers out there. 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 get a lawyer for your company.