I have over the last couple of years worked with entrepreneurs in start-up businesses. The one thing that continually stands out is that most of my clients do not consider the “legal aspects” as an important facet to their business. If they do seek advice, it may sometimes appear as if the advice expected is a quick solution to a long-term problem, which is never good for any type of business. That’s why it is important to know some of the legal tips, especially for start-ups.
Most start-up entrepreneurs use the reason that legal advice is costly and as such, it is an expenditure they do not want to invest in. I can assure you that once legal proceedings are initiated against you either personally or against your company, the cost you would incur in getting good legal counsel would be a lot more than what you may be incurring now.
In the long run, the fees will be higher, and the process a lot more time-consuming and protracted. It will be a detrimental lesson to learn. My advice is to always be aware of your legal rights and duties under the Companies Act 2016 if you wish to be in business.
I have always said that laying the foundation right from the beginning is key to any successful business. Here are legal tips, where you have to yourself these questions if you are in the start-up business or wish to start one:
1. Do I Have Partnership And/Or Founder Agreement In Place?
Oftentimes, people get so excited about a business plan that they forget to discuss the nitty-gritty. It is important to have regular meetings with your co-founders or investors about the terms of your partnership.
Some questions you may wish to ask and set out clearly in your partnership and/or founder agreement are:
- What are your specific roles and responsibilities as founders?
- What if one founder wishes to exit? What happens to his shares?
- What is the agreed percentage that each founder will get?
- What are the overall goals and expectations for the business?
- What are the consequences if the founders do not hit their specific KPIs?
- What are the pay-outs for allowances, dividends or salaries for co-founders?
2. Will The Start-up Be Registered As A Private Limited Company, Enterprise Or A Limited Liability Partnership?
This question is pivotal as there are tax implications as well as other accounting and auditing requirements that the start-up will need to comply with. Over and above that, personal liabilities of the partners and founders will also need to be considered.
For example, if an enterprise is set up, then there will be personal liability involved as opposed to a private limited company, where the company will take on that liability as a legal entity.
Do speak to your lawyer and accountant on a structure that would best suit you and your business.
3. Employment Issues
Having employment contracts in place for the people you hire whether they are freelancers or full-time employees is vital. This will reduce the risk of having a labour court dispute arise in the event you wish to terminate a particular employee who is not performing as expected.
Do ensure that your employment contracts have a confidentiality clause that binds your employees so as to ensure that your client and your confidential information are not divulged or disseminated to any third party.
4. Data Protection Matters
When your start-up business involves managing someone else’s personal data, there are legal standards that you must comply with in managing and handling such personal data. For example, obtaining the consent of the Data Subjects before you obtain their personal data, storing of the said personal data, giving access of the personal data you have in your possession to the Data Subjects when they ask for it.
Recently, the Personal Data Protection Commissioner has indicated her intention to carry out inspection on data users that are not registered or not required to be registered under the Personal Data Protection Act in order to ensure compliance with the general provisions of the Act as well as the minimum security, retention and data integrity standards set out under the Personal Data Protection Standards 2015.
5. Intellectual Property Matters
It is important to check with the Intellectual Property Corporation of Malaysia (“MyIPO”) whether some other company or person has already trademarked your startup business name. Please do the necessary searches to ensure that you are not using someone else’s business name or logo. This will ultimately relieve you of any hassle of being sued for trademark infringement.
And what a pity that would be if you have already gained traction in your startup business and people are starting to recognise your brand name not to mention the unnecessary legal cost of having to defend a suit for trademark infringement.
What I have set out here are just a few of the areas you may wish to consider in your own startup business. However, each and every business will have different needs or requirements so it would be best to speak to a legal advisor on setting your foundation right.
Even if you are already a successful start-up, I believe it is never too late to do a legal audit to check if everything has been set right, to avoid any unnecessary legal repercussions.
About the author
SHARMILA RAVENDRAN is the founder of the law firm, Messrs Ravindran located in Mont Kiara, Kuala Lumpur. She has more than 14 years of experience in the legal industry servicing clients that include local and foreign companies. She is now actively involved in corporate advisory work and commercial litigation and is a Panel Adjudicator with the Kuala Lumpur Regional Centre for Arbitration. She also sits on the Bar Council Child Rights Committee and is the Legal Director for Lean in Malaysia. She can be contacted at sharm@ravindran.com.my.
