Key Legal Documents Every Startup Should Consider
In this article, we will list the key legal documents you, as an entrepreneur or startup founder, should consider and have in place at different stages of establishing your startup.
It will cover:
- The key legal documents required when forming your business
- The key legal documents required when funding your business
- The key legal documents required for an online business
- The key legal documents required when hiring staff/employees
- The key legal documents required to safeguard your intellectual property
- The key legal documents required for the sale of goods and services
- The licences required for your business
Key Legal Documents Required When Forming Your Business
Before you consider the legal documents required to support your business, it is important for you as the founder to consider the type of business structure most appropriate for your business needs.
Depending on the scale of your business activities or the number of founders or partners involved, you may consider setting up a sole proprietorship, partnership, or even a company.
Sole proprietorships or partnerships generally offer the advantages of minimal formalities and administrative duties, low start-up costs, and ease of dissolution – understandably so given the smaller size of the entity. However, because you and/or your partners are considered a single legal entity with the business, you will be personally liable for the debts of the business and any other legal actions. If you wish to avoid potential personal liabilities, except for a limited liability partnership, then you would want to set up a company instead. With your company as a separate legal entity, your company can also own its own properties.
For more information, you may wish to read our other articles on sole proprietorship vs a company.
Based on your chosen business structure, you would then require legal formation documents such as a:
- Partnership agreement for a partnership; or
- Shareholders’ agreement for a company.
Such legal formation documents typically set out rules which regulate the business, such as the name and purpose of the business, how the business would function, buy-out procedures, dispute resolution, and financial and accounting arrangements.
Specifically, a partnership agreement may also list the responsibilities, performance and remuneration of each particular partner, the procedure for the withdrawal of old partners and the admission of new ones, terms, and termination of partnership. Similarly, a shareholder agreement may contain rules and guidelines on the company’s business plans, dividend policies, capital structure, and board composition.
These are very important legal documents as they lay the foundation for the workings of the partnership and company, and are most particularly useful when resolving disputes by providing clarity on the business’ stand on various issues like the general business plans, dispute resolution methods, etc.
Typically, there are no legal formation documents required to register a sole proprietorship – all you need is to select a suitable business name, and then submit an application for a sole proprietor business.
For a more detailed overview of incorporating your business, please refer to this registering a company in Singapore.
Key Legal Documents Required When Funding Your Business
As a business owner, you may require external funds. If so, you may also require the following legal documents to manage this inflow of capital and to protect your interests and your company’s:
- Promissory note: A promissory note is a written and signed unconditional promise made by a borrower to pay a certain sum of money to a specified party – in other words, a contract setting out the details and terms of a loan. As the borrower, it would be prudent to have this document in place as it would set out with certainty the exact sum of the loan and the terms of repayment.
- Commercial loan agreement: Similar to a promissory note, a commercial loan agreement also sets out the details and terms of a loan. The difference is that a promissory note is a formal document for what you may call an IOU, and is a relatively simple document. These may cover terms of a loan from friends or family. A commercial loan agreement is much more formal in terms of structure as these are typically loans obtained from financial institutions.
- Term sheet: If the source of funding is from private investors like Venture Capital firms or angel investors, then you may be familiar with a term sheet. A term sheet is a document setting out the key commercial terms on which investors agree to invest in the start-up. The term sheet functions as a general guide for the investment, and may be revised or amended if subsequent deviations are required. Whilst there is no legal requirement to have a term sheet in place prior to initiating negotiations, the term sheet may assist in facilitating negotiations as key issues would most likely be finalised in the term sheet.
You may refer to this guide on finding investors for your Singapore startup.
Key Legal Documents Required For an Online Business
In this modern time and age, everything and everyone is now online. Almost, if not all, companies would have some online presence. Protecting your online presence is important as it could otherwise lead to liability, privacy, and confidential issues.
To protect your online presence, these key legal documents may help:
- Non-disclosure agreements with external website vendors: If you are hiring external vendors to assist with developing the website, then you can and should consider having non-disclosure agreements in place to safeguard all proprietary information. A non-disclosure agreement is a legally binding contract between a provider and recipient of confidential material, knowledge, or information. Under an NDA, the vendor undertakes not to disclose important proprietary information which may include customer or client databases, sales and marketing plans or techniques, software, passwords and system specifications. This agreement is especially important if negotiations fall through in the end, as all important proprietary information would have already been safeguarded from public disclosure and/or publication.
Key Legal Documents Required When Hiring Staff/Employees
Your business will also require key legal documents governing the employment of your staff. Recruitment is an important and vital aspect of your business as it helps your business to target and locate the best and most suitable talent for your business. Your business can only grow with the right people.
In fact, recruitment is so important that some big companies have internal recruitment teams to manage this business strategy. As part of a recruitment team, you will need to understand the existing and future needs of the business. Then you will need to run advertisements and job listings to attract the correct and best talent for the roles.
Once the recruitment process is concluded, these legal documents would be required:
- Offer of employment letter – required when making an offer to a potential employee; and
- Employment contract/agreement – required to be signed to confirm the employee relationship.
For a more detailed discussion on employment agreements, you can refer to this employment agreement template if you wish to draft your own employment agreements.
Key Legal Documents Required to Safeguard Your Intellectual Property
Depending on your business, you may have established or acquired certain IP rights. For example, your business may be manufacturing products which qualify as a patentable (i.e. qualifies for patent protection) invention. More commonly, your business may have created names, logos or slogans to use as your business names, or to use in your advertisements to promote your business. These can be protected as trade marks. If you have created musical or artistic works, or products with unique designs, you may have copyright in these works, or may apply for these products to be registered designs.
You may refer to our other article for a more detailed discussion on IP rights in Singapore.
Some common legal documents to assist in safeguarding your IP rights may include:
- Trade mark licence agreement: A trade mark licence agreement permits the other party to use your trade mark subject to conditions (e.g. in a specific form or manner in marketing etc). This agreement would be necessary in the context of establishing franchises. As you may be aware, franchising is an important strategy for expanding your business activities. Your franchisees would therefore use or advertise your trade mark, so a licence agreement is important to safeguard your rights as the trade mark owner and to set out rules on how the trade mark should be used or advertised.
- Confidentiality or non-disclosure agreement: Non-disclosure agreements, as mentioned above, are important in protecting your business’ proprietary information. In the IP context, these agreements are especially important in protecting the novelty requirement of a patent, or your trade secrets like recipes especially if you run a food or drink company or restaurants.
It is also crucial to ensure appropriate IP provisions in your other legal key documents like employment agreements, employment guides, and your website terms and conditions. These appropriate IP provisions typically set out clear ownership of these IP rights and would help in avoiding ambiguity of who owns these IP rights.
Key Legal Documents For the Sale of Goods and Services
If your business deals with the sale of goods and/or services, it is important to be mindful of the legal aspects and key documents to manage relationships with stakeholders (e.g. customers, business partners, vendors, etc.)
Some of the relevant legal documents include:
- Letter of intent or memorandum of understanding: This document outlines a preliminary agreement between two parties before a deal is finalised. Like a term sheet mentioned above, this foundational agreement would help to accelerate negotiations and facilitate potential disputes and deviations.
- Sale of goods agreement / Supply of services agreement: As the name suggests, these agreements specify the rules for the sale of goods or supply of services.
You may find that you will need to obtain certain licences for your business to operate in Singapore.
Some more common licences relevant for startups include food import or export licences as well as education licences.
Food import/export licence
The Singapore Food Agency oversees the issuance of licences for the operation of a food shop or food stall, as well as for the import/export/transhipment of meat and fish products or poultry or fresh fruits and vegetables. If you wish to operate a food stall in a night market, you will also require a temporary licence.
If you wish to establish a childhood education centre, you will need a licence from the Early Childhood Development Agency.
Monetary Authority of Singapore (MAS) licences
If you are a cryptocurrency startup, you will need to obtain a licence from the Monetary Authority of Singapore. The licence seeks to minimise the risk of money laundering and counter-terrorism financing. There are 3 types of licences you can consider:
A money-changing licence permits the conduct of money-changing services. The applicant(s) should have a minimum of 1 year’s relevant working or business experience on a full-time basis, and fulfil citizenship requirements depending on the number of applicant(s). An annual licence fee of S$1,500 is payable.
Depending on the threshold of the transactions involved, you should obtain either a Standard Payment Institution Licence or a Major Payment Institution Licence. The former would apply if the transactions fall below these thresholds:
- S$3 million monthly transactions for any payment service (other than e-money account issuance and money-changing services).
- S$6 million monthly transactions for two or more payment services (other than e-money account issuance and money-changing services).
- S$5 million of daily outstanding e-money.
Other than the legal documents highlighted above, there are many different types of legal documents which may be relevant in providing clarity over how a certain aspect of your business should function or work. Do note that agreements, particularly written ones, could be useful in expediting negotiations and avoiding future disputes as these provide a general guide on the rules governing a particular part of your business.
You can refer to this page which sets out various legal document templates that can be adapted and used for the purposes outlined above. We also recommend that you consult the appropriate lawyers, i.e corporate lawyers, intellectual property lawyers, and data privacy lawyers, for advice or assistance with any of the documentation for the relevant issues outlined above.
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