Introduction

Raising early-stage funding for startups is a critical milestone for startup growth. It provides the financial fuel needed for expansion, but it also introduces significant legal risks that can jeopardise control, future fundraising, and even the long-term viability of the business.

Founders often rush into funding rounds in startups without fully understanding how investor terms, equity dilution in startups, and legal agreements impact their future. Failing to address these issues early can lead to costly disputes, loss of ownership, and funding roadblocks. 

In this article, we’ll cover the key legal considerations for startup funding, highlight common risks, and provide guidance on structuring funding rounds effectively.

Why This Matters

This is an important issue for startups because:

• Loss of Control: Without proper structuring, founders can unintentionally give away too much power to investors.
•  Legal Complexity: Each funding round requires navigating complex legal agreements and compliance requirements.
•  Investor Expectations: Not all money is good money—understanding investor terms is critical to avoid restrictive conditions.
• Equity Dilution Risks: Raising funds without planning equity allocations can lead to excessive dilution.
• Future Fundraising Issues: Poorly structured early rounds can create barriers to securing future funding.
• Exit Strategy Impact: The wrong funding terms can make exits more difficult or less lucrative.

Key Legal Considerations For Early-Stage Funding

Startups must be aware of several critical legal aspects when raising capital:

1. Structuring Funding Rounds
   • Understand different funding mechanisms: equity financing for startups, convertible notes for startups, and SAFEs (Simple Agreement for Future Equity).
   • Define clear valuation metrics to avoid disputes on company worth.
   • Ensure investor rights are properly structured to avoid governance conflicts.
   • Structure the deal to leave room for future funding and avoid rigid terms that can stifle flexibility.
2. Equity Dilution and Cap Table Management
   • Plan for dilution across multiple funding rounds.
   • Maintain a well-structured capitalisation table (cap table) to track ownership stakes.
   • Use vesting schedules to protect founder equity.
   • Take care to implement equity vesting for all founders and early employees to minimise early departure risks.
3. Investor Agreements & Shareholder Rights
   • Term Sheets: Define key terms upfront before entering into binding agreements.
   • Shareholder Agreements: Outline rights and obligations of shareholders to prevent future disputes.
   • Voting Rights: Ensure founders retain control over critical business decisions.
   • Negotiate board representation and anti-dilution clauses with caution. Investors often seek veto rights and control mechanisms that could impact founder autonomy.
   • Scrutinise liquidation preferences—investors may push for terms that prioritise their payout over founders and early employees.
4. Regulatory and Compliance Issues
   • Ensure compliance with Singapore’s Securities and Futures Act and other relevant laws.
   • Check whether the funding round triggers corporate restructuring obligations.
   • Obtain required regulatory approvals if operating in a regulated industry.
   • Review cross-border investment restrictions, and ensure corporate records are up-to-date to avoid documentation delays.
5. Exit Strategy Planning
   • Consider how funding terms impact future mergers, acquisitions, or IPOs.
   • Avoid investor rights that restrict your ability to sell the business.
   • Ensure drag-along and tag-along provisions align with long-term goals.
   • Also clarify what happens to shares during exit events to avoid founder lock-ins or blocked sales.

Common Risks Startups Face During Funding Rounds

The consequences of mishandling legal issues during funding rounds may include:

Legal Implications

• Unenforceable Agreements: Poorly drafted contracts may not hold up in court. 
• Breach of Regulatory Laws: Failure to comply with securities regulations can result in fines or legal action.
• Restrictive shareholder agreements in Series A deals may permanently shift control away from founders.

Founder Relationship Issues

• Loss of Majority Control: Founders may lose voting power without realising it.
• Founder Misalignment: Differing views on funding terms can lead to co-founder disputes.
• Equity imbalance between founders can sow long-term resentment if some are perceived to get preferential terms.
• Series A deals can also include founder lock-ins, limiting the ability to exit or pursue new ventures.

Commercial Implications

• Restrictive Investor Terms: Some investors demand rights that limit operational flexibility.
• Funding Bottlenecks: Poor early-stage agreements can make future fundraising difficult.
• Series A investors may impose veto rights or require financial oversight that impacts agility.
• Future funding rounds can be constrained by overly aggressive preference share structures.

Operational Implications

• Investor Interference: Investors with too much control can slow decision-making.
• Pressure to Exit Early: Some funding agreements may push for exits on unfavorable terms.
• Mandatory investor approvals on strategic moves (e.g. budgets, hiring, expansion) can slow momentum.
• Excessive reporting obligations can divert focus from growth.

Business Valuation Issues

• Down Rounds: Poorly structured funding rounds can lead to lower future valuations.
• Over-Dilution: Too much equity given away early on reduces long-term growth potential.
• High Series A valuations may create unrealistic growth expectations.
• Excessive preference shares can significantly reduce founder returns on exit.

The above lists are indicative issues—their relevance depends on your business structure and funding approach.

Case Studies: When Funding Rounds Go Wrong

Case Study 1: The Founder Who Lost His Company

A tech startup raised a seed round with generous investor protections, including preferred stock rights and voting control. As the company grew, the investors used their control to force out the original founder, leaving him with minimal equity. 

Lesson: Always structure voting rights to protect founder control.

Case Study 2: The Valuation Trap

A fintech startup accepted funding at an inflated valuation without considering future rounds. When performance didn’t meet expectations, the company had to raise its next round at a lower valuation (down round), reducing founder equity and investor confidence. 

Lesson: Be realistic about valuation expectations to avoid down rounds.

Case Study 3: The Exit Restriction Disaster

A startup signed an investor agreement with restrictive exit clauses, including investor approval for any sale. When the founders received a lucrative acquisition offer, the investors blocked it, leading to lost opportunities. 

Lesson: Ensure investor rights do not excessively limit exit strategies.

What You Need To Be Doing

We have identified quite a few potential risks that the startup needs to consider. Below are some examples of the types of steps you might want to consider taking to address these issues:

1. Define Funding Strategy Early
   • Decide whether equity financing, convertible notes, or SAFEs best fit your growth stage.
   • Plan multiple funding rounds to avoid excessive early-stage dilution.
2. Negotiate Favorable Investor Terms
   • Avoid giving investors too much control over decision-making.
   • Secure fair valuation terms to prevent unfavourable future funding rounds.
3. Ensure Legal & Regulatory Compliance
   • Work with legal experts to draft enforceable contracts.
   • Ensure compliance with Singapore’s securities laws and corporate regulations.
4. Protect Founder Control & Equity
   • Use vesting schedules to prevent early founder dilution.
   • Maintain a strong cap table management to track equity ownership.
5. Plan for Future Exits from Day One
   • Ensure investors’ exit rights align with your business strategy.
   • Structure agreements to allow flexibility in M&A and IPO scenarios.

The above suggestions are just a few of the steps you can consider taking. There are many more things that need to be done to ensure the associated risks are effectively and pragmatically dealt with. 

When negotiating Series A, it’s especially critical to ensure term sheets do not overly favour investors. Avoid provisions like full ratchet anti-dilution, excessive board control, or super-preferred shares that may reduce founder flexibility or ownership in future rounds.

Balancing Legal Priorities And Getting Your Business Moving

We are not trying to be alarmists about the legal issues discussed in this article. How they impact your business will differ based on your circumstances. Some may not be relevant at all.

However, awareness is key. By reviewing the GLS Start-Up Knowledge Hub, you can enhance your understanding of these issues and decide what actions to take.

Startups operate under intense resource constraints—time, budget, and focus are always limited. Sometimes ignoring a theoretical legal risk may make business sense. 

That’s not an endorsement of cutting corners, but knowledge is your best asset. This blog is about equipping you with insights to make informed decisions.

Final Thoughts

Raising capital is essential for startup growth, but failing to understand the legal considerations for startup funding can cripple your business.

Series A can catapult your startup to new heights—but only if structured wisely. Don’t just chase capital. Structure for control, sustainability, and long-term growth.

Founders need to be proactive in structuring funding rounds, managing equity dilution in startups, and securing favorable investor terms.

By working with legal experts, planning ahead, and negotiating smartly, you can raise funds while safeguarding your company’s future. 

If you need professional guidance, sign up for our GLS Legal On Call Free trial which gives you 3x complimentary calls with world-class lawyers. No strings attached. 

What Is An Employee Stock Option Programs (ESOP)?

An Employee Stock Option Program (ESOP) is a powerful tool for startups looking to attract, retain, and incentivise top talent without the immediate financial burden of high salaries. By offering stock options for employees – a stake in the company’s future success, startups can align interests, drive performance, and enhance loyalty.

However, implementing an ESOP for startups is not as simple as giving away shares—it involves legal, financial, and operational complexities that, if not properly managed, can lead to serious disputes and financial losses. This guide explores why ESOPs are offered, how they work, their benefits, challenges, and the key legal issues that founders need to consider.

Why Do Startups Offer ESOPs?

Startups frequently use ESOPs to compensate employees in ways that benefit both the company and the workforce. Key reasons include:

• Attracting Talent: Employee stock option programs help startups compete with larger companies that offer higher salaries.
• Retaining Key Employees: Vesting schedules ensure employees stay with the company longer.
• Aligning Incentives: Employees become shareholders, making them more committed to the startup’s success.
• Managing Cash Flow: Instead of high salaries, equity compensation allows startups to conserve cash.
• Rewarding Performance: Stock options can be tied to performance milestones, boosting motivation.

Attractive Features of an ESOP

An ESOP provides benefits to both the company and its employees, including:

• Deferred Compensation: Employees benefit financially if the startup grows in value.
• Tax Advantages: Some jurisdictions offer tax benefits for ESOP participants.
• Long-Term Engagement: Employees feel a stronger connection to the company’s success.
• Flexible Vesting Schedules: Founders can customize the vesting terms to ensure employees remain for the long term.
• Employee Buy-In: Employees act more like owners, leading to better productivity and company culture.

Challenges and Problematic Aspects of ESOPs

Despite their advantages, ESOPs come with challenges that can create significant risks if not managed properly:

• Dilution of Ownership: Existing shareholders' stakes are reduced as more options are issued.
• Tax Complications: Employees may face unexpected tax liabilities when exercising options.
• Complexity in Valuation: Determining the fair market value of the stock can be difficult.
• Regulatory Compliance: ESOPs must adhere to securities laws and corporate regulations.
• Resentment Among Employees: If some employees receive more equity than others, disputes can arise.

Common Problems Encountered When Implementing ESOPs

Startups often struggle with the following challenges when rolling out an ESOP:

• Unclear Terms: Vague vesting schedules and unclear option pricing create confusion.
• Failure to Communicate Value: Employees may not understand the long-term benefits of their stock options.
• Liquidity Issues: Employees may find it difficult to cash out their options if the company remains private.
• Lack of Legal Documentation: Poorly drafted agreements lead to disputes and legal issues.
• Granting Too Many Options Too Early: Over-distribution can lead to an unmanageable startup cap table and excessive dilution.

Key Legal Issues Associated With ESOPs

Before implementing an ESOP, startups must address several legal concerns:

• Regulatory Compliance: ESOP must comply with securities laws in the jurisdictions where employees are located.
• Vesting and Clawback Clauses: Clear vesting schedules and provisions for reclaiming unvested shares in case of early departures.
• Shareholder Approval: Depending on the company’s constitution, issuing new shares may require shareholder consent.
• Tax Implications: Employees and the company may face tax liabilities when exercising or selling stock options.
• Exit Event Considerations: Clearly outline what happens to unvested stock options in the event of an acquisition or IPO.

Case Studies: What Happens When an ESOP is Mishandled?

Case Study 1: The Dilution Disaster

A startup aggressively issued stock options without planning its equity allocation. By the time they sought Series B funding, investors were deterred by the high level of ownership equity dilution. The company had to restructure its cap table, causing resentment among employees and shareholders.
Lesson: Plan your ESOP carefully to prevent excessive dilution.

Case Study 2: The Tax Nightmare

A tech startup offered ESOPs but failed to educate employees about potential tax liabilities. When the company raised a new funding round at a higher valuation, employees were hit with large tax bills upon exercising their options, leading to widespread dissatisfaction.
Lesson: Always educate employees on the tax implications of ESOPs.

Case Study 3: The Exit Clause Oversight

A fast-growing e-commerce company implemented an ESOP but did not include provisions on what happens in an acquisition. When the company was acquired, employees discovered their options were worthless due to a poor structuring of exit terms.
Lesson: Always define what happens to ESOPs in exit scenarios.

Final Thoughts

An Employee Stock Option Program (ESOP) can be an incredible tool for startups, helping them attract and retain top talent while aligning interests between employees and shareholders. However, poor ESOP implementation can lead to dilution, legal challenges, and employee dissatisfaction.

Startups should seek legal and financial advice to ensure ESOP compliance and proper stock option structuring. Can I sell my ESOP shares? How do I calculate ESOP valuation? These are critical questions that require expert guidance.

If you need professional guidance, sign up for our GLS Legal On Call Free trial which gives you 3x complimentary calls with world-class lawyers. No strings attached. 

Plan ahead, educate your team, and structure your ESOP properly to avoid costly mistakes.

What is a Shareholders’ Agreement And Company Constitution?

A shareholders’ agreement is a critical document in defining the rights, obligations, and expectations of a company's shareholders. 

While a shareholders’ agreement is a private contract between shareholders, the company’s constitution is a legally binding document that governs the company’s internal management. 

If the two are not aligned, conflicts can arise, and enforcement of key shareholder protections may become problematic. It can result in serious legal, operational and financial risks.

Implications of a Disconnect Between the Shareholders’ Agreement and Company Constitution

A misalignment between these documents can lead to:

• Enforceability Issues: Courts in Singapore may prioritise the company’s constitution over a shareholders’ agreement in certain disputes.
• Third-Party Confusion: External parties (banks, regulators, investors) rely on the constitution, not private agreements, to assess corporate governance.
• Investor & Exit Risks: Potential investors may be deterred by inconsistencies, and transfer of shares in Singapore may be challenged.
• Operational Disruptions: Company officers and directors may face conflicting instructions on governance matters.

Common Areas of Non-Alignment

Misalignment often occurs in the following key areas:

• Voting Rights & Decision-Making: Shareholders’ agreement may grant specific voting rights that are not reflected in the company constitution.
• Transfer of Shares: Pre-emption rights, rights of first refusal, and drag-along/tag-along clauses often differ between the two documents.
• Board Composition & Appointment: The shareholders’ Agreement may specify board seats for certain investors, but if this isn’t reflected in the company constitution, disputes may arise.
• Dividend Distribution: The agreement may define profit-sharing mechanisms that contradict the constitution’s provisions.
• Exit & Buyout Provisions: Shareholder exit mechanisms (e.g., forced sales, valuation methods) must be reflected in the constitution to be enforceable.
• Dispute Resolution: The agreement may specify arbitration or mediation, while the constitution may not recognize these mechanisms.

Limitations on Constitutional Changes Under Singapore Law

While companies in Singapore have flexibility to amend their company constitution, there are legal constraints:

• Approval Thresholds: Amendments generally require at least a 75% shareholder vote (Special Resolution) under the Companies Act (Cap. 50).
• Statutory Provisions Override: Certain statutory requirements (e.g., director duties, creditor protections) cannot be overridden, even if agreed upon by shareholders.
• Protection of Minority Shareholders: Any amendment that unfairly prejudices minority shareholders could be challenged under the Companies Act.
• Regulatory Considerations: Certain regulated industries (e.g., finance, healthcare) may have restrictions on governance structures that must be reflected in the company constitution in Singapore.

Case Studies: When Misalignment Leads to Disputes

Case Study 1: The Boardroom Deadlock

A tech startup secured venture capital (VC) investment, granting the VC firm two board seats under the shareholders’ agreement in Singapore. However, the company’s constitution did not reflect this, leading to disputes when the founders refused to recognize the VC’s nominated directors. The VC firm had to take legal action, delaying Business operations for months.

Lesson: Ensure board appointment rights in the Shareholders’ Agreement are reflected in the Company Constitution in Singapore.

Case Study 2: The Forced Exit Dispute

A co-founder in a fintech company wanted to exit, and the shareholders’ agreement required remaining shareholders to buy out his shares at fair market value. However, the company constitution had no provision for compulsory buyouts. When the other founders refused to purchase his shares, the departing founder was stuck in the company, leading to a long-drawn legal battle.

Lesson: Shareholder exit mechanisms should be embedded in the Company Constitution in Singapore.

Case Study 3: The Investor Lockout

An e-commerce startup agreed to give early investors priority dividend rights through a shareholders’ agreement. However, the company constitution still contained standard equal-shareholder rights, contradicting the agreement. When the startup became profitable, the founders distributed dividends equally, ignoring investor priority. This led to investor litigation, damaging the startup’s fundraising prospects.

Lesson: Financial rights and obligations in shareholders’ agreement must be properly mirrored in the company constitution.

Best Practices to Ensure Alignment

To avoid issues, Companies should:

1. Draft Together: Prepare the shareholders’ agreement and company constitution concurrently to ensure consistency.
2. Use Cross-Referencing: Where feasible, include references in the company constitution to key provisions in the shareholders’ agreement.
3. Regularly Review: As the business evolves, revisit both documents to ensure they remain aligned.
4. Seek Legal Advice: Engage a Corporate Lawyer in Singapore familiar with Singapore’s regulatory framework to draft and review these documents.

Final Thoughts

Aligning the shareholders’ agreement with the company constitution is not just a legal formality—it’s a business necessity. Misalignment can lead to disputes, hinder investment, and create governance inefficiencies. Companies should proactively review both documents and ensure they work in harmony to support a stable and legally sound corporate structure.

If you need professional guidance, sign up for our GLS Legal On Call Free trial which gives you 3x complimentary calls with world-class lawyers. No strings attached.

Introduction

Registering your company is one of the most important early decisions you'll make—and a Singapore company registration is no exception. Choosing the right legal entity in Singapore impacts taxation, liability, corporate compliance requirements, and your ability to attract investors.

Many entrepreneurs rush into company formation in Singapore without fully understanding the implications of different business structures. A poorly chosen structure can lead to costly implications.

In this guide, we outline the key types of business entities available in Singapore, their advantages and disadvantages, and why seeking legal advice is essential for making the right choice when setting up a business in Singapore.

Common Types of Business Entities in Singapore

1. Sole Proprietorship

A sole proprietorship in Singapore is the simplest and most straightforward business structure.

• Pros:
  • Easy and inexpensive to register sole proprietorship in Singapore.
  • Full control over business decisions.
  • Minimal compliance requirements.
• Cons:
  • No separate legal entity—owner is personally liable for debts.
  • Limited ability to raise funds.
  • Not ideal for scaling a business.

2. Partnership 

A partnership is formed when two or more individuals agree to share ownership and profits.

• Pros:
  • Simple to establish and operate.
  • Shared financial responsibility and expertise.
  • Fewer regulatory requirements than a company
• Cons:
  • Partners are personally liable for business debts.
  • Potential disputes between partners.
  • Difficult to transfer ownership.

3. Limited Liability Partnership (LLP)

A Limited Liability Partnership (LLP) in Singapore provides the flexibility of a partnership while offering limited liability to its partners.

• Pros:
  • Partners are not personally liable for business debts.
  • Less complex compliance than a Private Limited Company in Singapore.
  • Suitable for professional firms (e.g., law, accounting, consulting firms).
• Cons:
  • Still requires annual compliance filings.
  • Each partner is personally liable for their own misconduct.
  • Limited ability to raise capital.

4. Private Limited Company (Pte Ltd)

A Private Limited Company in Singapore is the most popular and scalable business structure in the country.

• Pros:
  • Separate legal entity in Singapore—owners are not personally liable.
  • More credibility with investors, banks, and clients.
  • Easier to raise capital through shares.
  • Access to corporate tax incentives and benefits in Singapore.
• Cons:
  • Higher setup and compliance costs.
  • More regulatory obligations (e.g., annual filing, corporate tax filing).
  • Requires at least one local director.

5. Public Company 

A Public Company in Singapore can raise capital from the public and is typically suited for large businesses.

• Pros:
  • Ability to raise significant capital through public listing.
  • Enhanced credibility and business expansion potential.
• Cons:
  • Strict compliance and reporting obligations.
  • Expensive to set up and maintain.
  • Loss of control due to shareholder interests.

6. Foreign Company (Branch Office, Subsidiary, Representative Office)

Foreign businesses looking to expand into Singapore have several options.

• Branch Office:
  • Extension of the parent company, not a separate legal entity.
  • Parent company is liable for branch activities.
• Subsidiary:
  • Separate entity from the parent company.
  • More operational flexibility and tax benefits.
• Representative Office:
  • Temporary setup for market research and networking.
  • Cannot conduct revenue-generating activities.

Choosing the Right Structure for Your Business

The best entity for your Singapore company registration depends on several factors, including:

• Liability Protection – Do you want to limit personal liability?
• Funding Needs – Will you seek investment or business loans?
• Operational Flexibility – Do you need a simple or scalable structure?
• Compliance Requirements – Are you prepared for regulatory obligations?

Seeking Professional Advice for Singapore Company Registration

Selecting the wrong business structure can lead to legal, financial, and operational complications. Consulting a corporate lawyer or business advisor ensures that you choose the structure best suited for your long-term goals.

If you're unsure which entity is right for you, speak with a legal expert before making your decision. Taking the time to choose wisely now can save you from costly restructuring or legal issues in the future.

Final Thoughts

The process of Singapore company registration is more than just filling out forms—it’s about making strategic decisions that impact your business for years to come.

From sole proprietorship to Public Company structures in Singapore, each has its own advantages and challenges. Understanding these differences helps you make an informed choice when setting up a business in Singapore.

At GLS, we offer you 3x free calls to world-class legal experts. Try it here.

Protect Your Startup Idea Before It’s Too Late

If you think your startup idea is safe just because it's yours, think again. The startup world is fiercely competitive and failing to secure your intellectual property (IP) and confidential information can leave you exposed. Many founders focus on product development and fundraising, assuming they can handle legal protections later. That assumption is a huge mistake—one that could cost you your business.
In this article, we highlight critical legal risks that many founders overlook before launch and provide practical steps to safeguard your startup idea. 

Why Protecting Your Startup Idea Early is Crucial for Success

This is an important issue for startups because:

• First-Mover Risk: If your idea is leaked or stolen, competitors can beat you to market.
• Lack of Legal Protection: Without the right legal safeguards, your idea has no enforceable ownership.
• Untrustworthy Partners: Co-founders, investors, and collaborators may claim ownership or misuse confidential information.
• Employee & Contractor Risks: Those working on your idea may walk away with valuable knowledge and start competing businesses.
• Investor Hesitation: If you can't prove your idea is protected, serious investors may walk away.
• Unclear IP Rights: Failure to establish IP ownership early can lead to disputes and legal battles.
• Tech Theft Exposure: Developers and third parties handling your code or product could misuse or duplicate your work.
• Brand Identity Risk: Without trademarking, another business could register your brand name before you do.

Consequences of Not Addressing These Issues

The consequences of failing to protect your startup idea may include:

Legal Implications

• IP Theft: Without legal protections, others can copy your idea with no consequences.
• Trademark Issues: Losing your brand name to another company due to late registration.
• Lawsuits: If a dispute arises, lack of formal protections makes it harder to win.

Founder Relationship Issues

• Ownership Disputes: Co-founders may claim larger ownership stakes than they deserve.
• Exit Conflicts: A departing co-founder might take valuable IP with them.

Commercial Implications

• Investor Doubts: Investors hesitate to fund startups with unprotected ideas.
• Lost Market Advantage: If your idea is copied, you may lose the ability to monetize it.

Operational Implications

• Employee Risks: Staff or contractors could leave and start competing businesses.
• IP Uncertainty: Poor documentation makes it hard to enforce ownership rights.

Business Valuation Issues

• Lower Valuation: A startup with unprotected IP is worth significantly less.
• Acquisition Risks: Potential buyers may walk away if your IP isn't secure.

The above lists are indicative issues—their relevance depends on your business model and circumstances.

How to Protect Your Startup Idea Before Launch

We have identified quite a number of potential risks that startups need to consider. Below are some examples of steps you might want to take to address these challenges:

1. Use Non-Disclosure Agreements (NDAs)

• Require NDAs when discussing your idea with potential partners, employees, and investors.
• Ensure NDAs include strong confidentiality clauses to prevent information leaks.
• Here is an NDA for startups: Link

2. Establish IP Ownership Early

• Clearly define IP ownership among co-founders and investors.
• Assign IP rights to the company rather than individuals.

3. File for Trademark Protection

• Register your startup's name, logo, and slogans as trademarks.
• Learn about the trademark registration process and conduct a trademark search to ensure no one else has already claimed them.

4. Secure Domain Names & Social Media Handles

• Register your startup domain names and social media profiles before announcing your startup.
• Use brand protection tools to monitor for impersonators.

5. Protect Source Code & Technology

• Use contracts to clarify ownership of code developed by employees or contractors.
• Implement restricted access to sensitive software and technology.

6. Set Up Proper Contracts for Employees & Contractors

• Ensure employment contracts include employee confidentiality agreements and non-compete clauses.
• Require contractors to sign agreements assigning IP rights to the company.

7. Patent Key Innovations (If Applicable)

• If your idea involves a unique invention, consider filing a provisional startup patent early.
• Keep patent details confidential until your application is filed.

The above suggestions are just a few of the steps you can consider taking. There are many more things that need to be done to ensure the associated risks are effectively and pragmatically dealt with.

Balancing Legal Priorities and Getting Your Business Moving

We are not trying to be alarmists about the legal issues discussed in this article. How they impact your business will differ based on your circumstances. Some may not be relevant at all.
However, awareness is key. By reviewing the GLS Start-Up Knowledge Hub, you can enhance your understanding of these issues and decide what actions to take.
Startups operate under intense resource constraints—time, budget, and focus are always limited. Sometimes ignoring a theoretical legal risk may make business sense. That’s not an endorsement of cutting corners, but knowledge is your best asset. This blog is about equipping you with insights to make informed decisions.

How These Risks Can Play Out: Real-World Case Studies

Case Study 1: The Winklevoss Twins vs. Mark Zuckerberg

The Winklevoss twins accused Mark Zuckerberg of stealing their idea for a social networking platform. The dispute led to a legal battle and a $65 million settlement. Lesson: Secure your IP and formalize agreements before discussing your idea with anyone.

Case Study 2: The Oculus Rift Founder's Dispute

Palmer Luckey, the founder of Oculus, faced legal challenges when another company claimed he developed key technology while working for them. Facebook had to settle for $100 million. Lesson: Clearly document ownership from the beginning.

Case Study 3: The Snapchat Ouster

Reggie Brown, one of Snapchat’s original creators, was forced out after contributing to the startup's core idea. He later sued and won a large settlement. Lesson: Define co-founder contributions and ownership in a written agreement.

Your Problem is Likely Shared

The good news is that at least 80% of the legal issues faced by startups are common across businesses.
This means common problems often have common solutions. Today, legal service providers who integrate legal tech with information solutions can make startup legal support far more accessible and affordable.
For example, does your employment contract need to be drastically different from another startup's if it covers all key legal and compliance risks? Probably not. Legal solutions can be systematised, reducing complexity and cost.

Final Thoughts

Your startup's greatest asset is your idea—if you don’t protect it, someone else will. The world is full of stories of founders who lost control of their vision because they failed to secure their intellectual property and legal agreements. So follow the steps above, and you’ll know how to protect your startup idea.
However, these challenges are not unique—founder conflicts and IP theft are predictable and preventable. Addressing these issues early with structured protections can help secure your startup’s future.

How GLS Can Help You

GLS may well be able to help you navigate these issues beyond this blog. Few, if any, integrated legal solution providers have made themselves as accessible to the startup community as we have.
Consider engaging with GLS via any of the following means:
• GLS Start-Up Centre – Visit our world-leading startup legal support resource for ready-made solutions at a fraction of the cost: www.gls-startuplaw.com
• GLS Knowledge Hub – Explore more insights: www.gls-startuplaw.com/blog
• GLS Support Plan – Gain in-house legal capability at disruptively low pricing: GLS Start-Up Support
• GLS Legal On Call™ – Trial our service for free with three in-house legal consults: Free Trial
• Book a Consult – Schedule a free 15-minute consultation: Book Here

Secure your idea—protect your future. 

Understanding Startup Legal Issues: A Crucial Foundation For Success

The transition from an idea to a functioning startup is filled with excitement—but also legal pitfalls that can cripple your business before it even takes off. Many founders focus on product development and market entry, underestimating the legal foundations that support long-term success. Here are ten critical startup legal issues commonly faced—and how to mitigate them.

1. Incorporation Choice: Choosing The Right Structure

Failing to select the right legal structure (LLC, C-Corp, S-Corp, etc.) can lead to tax inefficiencies, funding roadblocks, and liability risks.

• Understand the implications of each business entity type.
• Consider tax efficiency, liability protection, and investor preferences.
• Seek legal and financial advice before making a final decision. 

Consequence of Ignoring This: Exposure to personal liability, tax inefficiencies, and difficulties in raising investment.

2. Founder Agreements: Lack Of Clear Terms

Many startups neglect formal agreements between founders, leading to misalignment and disputes.

• Clearly define roles, responsibilities, and decision-making authority.
• Establish dispute resolution mechanisms.
• Outline exit terms and ownership rights in a founders’ agreement.

Consequence of Ignoring This: Costly legal battles and potential business failure due to unresolved conflicts.

3. How To Split Equity In A Startup: Disputes Between Founders

Improperly structured equity splits often lead to resentment and legal disputes.

• Use a structured approach, such as vesting schedules.
• Consider performance-based allocations.
• Get equity agreements in writing.

Consequence of Ignoring This: Disputes that lead to business breakdowns and loss of investor confidence.

4. Licensing Requirements: Ignoring Necessary Permits

Operating without proper licenses and permits can result in regulatory penalties and business shutdowns.

• Research industry-specific and local licensing requirements.
• Keep permits up to date.
• Consult legal professionals on compliance needs.

Consequence of Ignoring This: Fines, lawsuits, or forced closure of operations.

 5. Tax Liabilities: Misunderstanding Tax Obligations

Poor tax planning can lead to unexpected liabilities that cripple your startup.

• Understand federal, state, and local tax obligations.
• Keep accurate financial records from day one.
• Work with an accountant to structure tax-efficient operations.

Consequence of Ignoring This: Severe financial penalties and potential IRS audits.

6. Compliance Violations: Overlooking Industry Regulations

Many startups operate in highly regulated industries but fail to comply with necessary legal frameworks.

• Identify industry-specific regulations (e.g., fintech, healthcare, SaaS).
• Implement compliance processes from the start.
• Regularly review legal requirements as the company scales.
• Use a startup compliance checklist

Consequence of Ignoring This: Legal sanctions, loss of credibility, and potential lawsuits.

7. Contract Disputes: Undefined Client/Vendor Terms

Unclear contracts with clients, vendors, or service providers can result in disputes that disrupt operations.

• Use legally vetted contracts for all business transactions.
• Clearly define payment terms, deliverables, and liability clauses.
• Regularly update contracts as the business evolves.

Consequence of Ignoring This: Lawsuits, unpaid invoices, and damaged business relationships.

8. Investment Terms: Misinterpreting Funding Agreements

Many founders rush into funding agreements without fully understanding the long-term implications.

• Carefully review investment terms, including dilution and control rights.
• Avoid agreements that overly restrict future fundraising.
• Engage a legal professional to negotiate investor terms.

Consequence of Ignoring This: Loss of control over the company or restrictive financial obligations.

9. Non-Compete Clauses: Overly Restrictive Agreements

Poorly structured non-compete clauses can limit your ability to attract talent or restrict founders from starting new ventures.

• Ensure non-compete agreements are reasonable in scope and duration.
• Align agreements with enforceable law standards.
• Consider alternative protections like NDAs and IP assignments.

Consequence of Ignoring This: Legal battles, difficulty in hiring, and founder restrictions.

10. Employee Classification: Mislabeling Contractors vs. Employees

Misclassifying employees as independent contractors can result in legal action and financial penalties.

• Understand IRS and labor law classifications.
• Provide proper benefits and protections to employees.
• Maintain clear contracts defining work relationships.

Consequence of Ignoring This: Lawsuits, back taxes, and penalties from labour authorities.

What You Need to Be Doing

The above are just a few steps you can consider taking. There are many more things that need to be done to ensure the associated risks are effectively and pragmatically dealt with.

Legal challenges and issues are a certainty in the startup world, but they don’t have to be business-ending. Addressing these key legal issues early ensures your startup is legally sound, investor-ready, and set-up for long-term success.

Prioritise legal strategy as much as product development—your business depends on it.

Yes! The founders of any company should always enter into a shareholders agreement (SHA) as a key means of ensuring founder alignment and avoiding future disputes.

The shareholders agreement sets out the rights and obligations of each founder and the board of directors.

Note, the SHA is not the same agreement that a founder might use to acquire their shares in the first place.

A good shareholders agreement would typically address the following:

Composition of the Board

It is very common that venture investors will require that all shares and options held by the founders (and other employees) of the Startup be subject to vesting.

Vesting is the process / period that must have been satisfied before a person/entity has the full right/entitlement to the stock that is subject of the vesting scheme.

Without a vesting concept, it could be the case that one or more founders could simply leave the Startup whilst still being able to retain their shares.

The founders are obviously the driving force of the Startup and if they are not locked into the business in a meaningful way, the value proposition that the Startup represents is diminished.

Indeed, this can create significant issues including including making fundraising very difficult. Investors will want to see founder talent locked into the Startup project.

As such, the founders should consider the inclusion of vesting conditions into either the SHA or in stock purchase agreements entered into at the time the stock is issued to the founders.

In terms of "vesting" market practices, it is noteworthy that in Silicon Valley the typical vesting period is four years. The vesting schedule typically is typically 25% of the shares vesting after 1 year of service and then an equal percentage of the remainder of shares vesting for the remaining 36 months.

If a founder stops providing services to the Startup, then the company can take back the unvested shares or options held by the founders.

The transfer of shares

Founders typically own all of the shares in the Startup and this can give rise to certain complications. As such it is important to consider limits on when shares can be sold or otherwise transferred.

Founders typically have a right of first refusal on the transfer of shares. How this works is that the founder who wishes to sell would let the company and/or other founders know that they wish to sell. The company and/or founder would then have the right to buy the shares on the same terms and conditions offered by a third-party purchaser.

Co-sale rights are also potentially important, where the right of first refusal is not exercised. In this case a co-sale right allows the other founders to participate with the selling founder in selling a pro rata amount of their own shares to the third-party purchaser.

Whether or not shares can be sold to competitors is something that founders should focus on.

If the above types of matters are not dealt with in the company's Certificate of Incorporation or bylaws (the organizational documents), they they will likely not exist.

As in the case of vesting, some of these terms may also appear in the founder stock purchase agreements.

Special voting rights − protective provisions

Shareholders may wish to retain the right to approve certain matters that impact the company. Ordinarily, for most businesses, most company business matters are determined by the board or company senior executives.

The kind of matters where shareholders may wish to reserve the right to approve things might include:

• incurring debt over a specific amount
• issuance of preference shares
• issuance of any equity security senior to common stock
• the sale of the company
• significant changes company's business
• changes to founder compensation

Founders, understandably, view these types of issues as being particularly important. In such cases, they may even require a supermajority (instead of just a simple majority) vote before they could be undertaken.

Founders frequently find themselves short on time or funds for legal budgets, so we frequently see that founders quite often fail to address the above critical type of issues.

Instead, founders are often content for existing law and/or their organizational documents control these issues. That may or may not prove to be the best position.

The founders should come to an agreement on these concerns early on; then, should an issue arise, there is a clear way of dealing with it.

Shareholder agreement templates - how we can help

Founders can obtain an excellent shareholder agreement template from the GLS Start Up Legal Support Centre.

Starting with the correct template will help ensure your SHA covers the ground that it needs to including: board composition, vesting, share transfer, special voting rights, representations and warranties, closing date, minority shareholders, provisions around selling shares, number of shares, majority shareholder rights, relationship with articles of incorporation, etc.

You can also access a wide range of shareholder related agreements from the GLS Start Up Legal Support Centre including:

Variable share purchase agreement templates

Depending on your start up - you might need a short form agreement or perhaps a long form agreement. We have templates available to reflect the complexity of your shareholder arrangements.

Shareholder loan templates

Shareholders are often the source of funding for your Startup business. As such, shareholder loan arrangements should be adequately documented. Your shareholder loan agreement should operate in conjunction with your shareholder agreement.

If you would like to see a sample shareholder loan agreement please click here.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Congratulations on launching your Startup! This is undoubtedly an exciting time and it’s just the beginning, so don’t let easily avoidable legal troubles trip you up on what will hopefully be a long, prosperous journey. 

While a few of our other articles cover in depth analysis of legal issues, this list provides an easy reference / brief overview of some of the most common legal mistakes made by Startups:

Mistake #1: Choosing a Company Name Without Regard to Trademarks

While brainstorming names for your Startup, be sure to do research to avoid trademark infringement and to ensure that the name you select is one actually available to use. Fortunately, the internet makes this easy. Doubtless, you know to use Google to see if another company is already using the name you want, but also do a search on your country’s official patent and trademark office. While you’re at it, check to see if your optimal “.com” domain name is available. 

Mistake #2: Vague Co-Founder Contracts

Co-founders are your brothers or sisters-in-arms, but it’s vital to come to an agreement early as to what each founder’s roles, responsibilities and remuneration will be. Draft a clear business contract that includes as many details as possible about how equity will be divided, what will happen if one founder leaves, how key decisions will be made, which circumstances will determine when a founder should be removed, and so forth.

Mistake #3: Incorrect Business Structure

Deciding in what legal form to operate your company is one of the very first decisions a Startup’s founders must make. Not structuring the business correctly can be extremely detrimental, sometimes leading a venture to incur higher taxes or become subject to significant and entirely avoidable liabilities. Liability protection from business creditors, ease in raising capital, and tax savings via deductions are just some of the advantages granted to corporations, LLCs (limited liability companies) and limited partnerships.

Mistake #4: Poorly Written Terms of Use Agreements and Privacy Policies

Your website is the face your business offers to the world. An appealing design, clear explanations of your services or products, and active links are all critical components, but more important are your Terms of Use Agreement and Privacy Policy. A good Terms of Use Agreement sets forth the terms and conditions for people using your website, and should cover disclaimers, warranties, dispute resolution, intellectual property rights, and so forth. Meanwhile, a Privacy Policy is a legal statement on your website that states what you will do with the personal data collected from users of the site and how such data may be used, sold or released to third parties.

Mistake #5: Vague Employment Contracts

Hiring employees can involve several distinct business contracts, including offers of employment, confidentiality agreements and invention assignment agreements (though sometimes these are all incorporated into a single employment or consultancy agreement). 

It behooves any Startup to make these documents as specific and legally sound as possible, and to do so early on. 

There are numerous laws concerning how a business can treat its workers, from prohibiting certain interview questions to steps required to terminate someone. The correct documentation will protect your Startup from potential allegations and conflict.

Mistake #6: Not Having the Right Legal Counsel

Many Startups forgo legal counsel in a misguided attempt to save on expenses, but in doing so are more likely to face costly legal trouble in the future. While you may be able to choose an untrademarked name for your company and decide on a corporate structure without assistance, it is worth investing in an expert to help you lay the foundation for your business, particularly in regard to how your Startup will engage with employees and clients. 

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Every entrepreneur should understand the basic tenets of business contracts. When well written, a contract will not only make running your Startup smoother but also protect against possible future conflicts. In many ways, a business contract can be boiled down to two key components: representations and warranties.

Simply put, representations are the facts that a contract is operating off of and warranties are security against loss should those facts be found false. In a business agreement, the representations and warranties act as assurances from one party to another and serve as the best form of protection for all involved. The purpose of including them in a contract is to disclose information between all involved parties. At their core, representations and warranties uphold the entire point of creating a business agreement in the first place: to protect the buyer and the seller.

Any contract drawn up between two or more parties will include representations and warranties. For example, if you decide to buy a new computer from a major brand’s store, you would enter into this transaction with several representations, including:

• The computer is actually the model, make, brand, etc. that the seller represents it to be
• The store is legally authorized to sell computers to customers
• The computer will work as promised when used properly

The warranty made by the computer store is that all of the above concepts are valid. If one or all of these representations are found to be untrue, the transaction may be cancelled or reversed. Another warranty made by the seller might be to repair any defect that arose because of misrepresentation. As you probably know, warranties often do not last forever. In this case, the seller or manufacturer of the computer might declare a period of time when the unit will work without any defects, after which the warranty would no longer be applicable. 

Do note that exaggerating the good points of a product or service does not constitute a false representation, though of course an outright lie would. In most cases, when a representation is demonstrated to be false, the warranty allows the person involved in the contract to terminate or decline the transaction.

Including representations and warranties in a contract is the simplest way to split the risk between all those who sign. Representations and warranties also become the plinth for any future amendments to the contract, even possible termination of it. Nevertheless, some companies choose not to include representations in contracts or agreements because doing so may put them at risk of being sued for fraud. Representations always refer to past information, since naturally it is impossible for a company or individual to state future information as factual. For certain services or business models, it may be difficult to articulate all possible representations and thus, warranties may be implied rather than directly expressed.

Generally speaking, however, it’s usually smart for Startups to include specific representations and warranties in any business contract. They allow all involved parties to feel confident that they will receive what they expect and offer recourse for resolving any possible future conflicts.

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Whether you run a multi-department corporation or have just launched a small business, how you guarantee that clients pay you (and pay you on time) will determine not only your profits but also how you structure future company growth. As much as we’d like to rely on honor and honest communication, it’s vital to have a strategy for what to do if a client refuses to pay you for your services. 

Do your research

First, before you even agree to take the client on, do your research. The internet never forgets, and a quick search should reveal if the person or company you’re considering doing business with has a reputation for dodging payments. For major undertakings, it might even be worth asking the potential client for a reference.

Have a contract

Second and arguably the most critical: even the smallest one-person business should have every client sign a written contract that specifies the scope of the project, the amount the client will owe, when payments are to be made and what retribution can be expected if those payments are not made on time. If the worst happens and you end up having to take legal action, a contract with all of the above details will make it much easier to argue your case.

While it might seem strong to discuss late fees right off the bat, it is necessary to protect your interests and sends a clear message to a client that you take your work seriously. Common practice is to declare a window of 10 to 15 days after an invoice is issued, after which a late fee will be charged. You can send a reminder to the client before this occurs to give them a chance to pay on time, but you should also continue to tack on late fees the longer the invoice goes unpaid.

Payment schedule 

Another common practice, especially for entrepreneurs providing services or commissions, is to require a client pay a percentage of the total cost before work has begun. This guarantees you at least some income. For larger or more time-consuming projects, it might be worth creating a payment schedule. For example, a graphic designer working on commission might create a contract that requires a client to pay 50% of the total cost upfront, then 25% when the client approves the first draft, and the final 25% upon the completion of the project. That way, if an invoice goes unpaid, the artist can stop working on the project. It should go without saying, but if a client is late on an invoice, refuse to do anything more for them until they pay what was agreed to.

Legal action

The last resort is, of course, to seek legal action. Small businesses are often reluctant to do so, since it can be expensive and time consuming to take a client to court. However, sometimes just the threat of legal action is enough to spur a client to pay what they owe. 

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

With the amount of time, energy and expertise required to launch a Startup, it’s no mystery why many entrepreneurs team up to take on the challenge. 

Many Startup co-founders start as friends before becoming business partners, which means that they often make the mistake of assuming that their chemistry and goodwill will carry them through any conflicts that ever arises. However, without an effective legal framework, amicable partnerships can sour quickly. Oral promises and vaguely defined agreements are guaranteed to spark miscommunication or misinterpretation down the line, which can seriously disrupt a Startup’s growth and progress.

To thwart potential fallouts before they threaten a fledgling business, it’s advisable to use an intelligently written and effective “founders agreement”. 

Here are some key issues that you should consider addressing when preparing an founders agreement:

• What is the overall goal and vision for the business, both short term and long term?
• What are the specific roles and responsibilities of each founder?
• How day-to-day decisions will be made – define the circumstances when founders can make judgment calls and when they must seek the consent of other founders
• How major business decisions will be made – majority vote, unanimous vote, separated areas of responsibility, etc
• Time commitment expected from each founder
• Whether founders will be expected to comply with certain constraints, such as non-compete clauses
• Assets and financial contributions expected from each founder
• How accountability of founders is to be measured and validated
• Whether each founder’s percentage of ownership in the company is reliant on meeting certain time commitments or participation
• Projected timelines for the Startup’s development and each founder’s expected role for each phase
• Whether equity will be split equally among the founders and, if not, what determines the distribution ratio
• Procedures for hiring employees – how to determine when and which type of staff are needed, what salaries and benefits to offer, what specific limitations and expectations should be included in their employment contracts
• Whether founders are entitled to salaries and how/if those salaries may be changed in the future
• Methods to resolve potential future conflicts – how to respond to a founder who is unable or unwilling to uphold their commitment to the Startup, under what circumstances a founder may be removed from their position
• Procedures to follow if a founder leaves – determine whether the other founders can buy the departed founder’s share of the business and at what price, develop a plan for how to divide that founder’s responsibilities, etc
• What will occur in the event that there is an offer to purchase the business?
• How, when and for what purpose any of the above terms can be altered

As they say, if you “fail to plan you are planning to fail” - a Startup without a strong legal basis and clear goals shared by all its founders is fated for sticky situations in the future.

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Intellectual property is the heart of many, if not most, Startup ventures, and how it is safeguarded can make or break a company. Unfortunately - not enough Startup founders pay attention to the importance of their IP assets. This blog sheds some light on your potential IP assets.  

It’s not enough to have a revolutionary idea, you need to prove it and protect it. It is vital that a Startup’s founders invest early in ensuring that their fledgling business not only protects its intellectual property but also avoids infringing on the rights of others.

Unlike traditional property, such as land or physical goods, intellectual property is often intangible and indivisible – that is, an unlimited amount of people can ‘consume’ a piece of intellectual property without depleting it. The very nature of intellectual property can therefore make protecting it complicated, especially as some countries recognize more types of IP than others. 

Here are the most common and most commonly recognized forms of IP protection:

• Copyright – Covers original works of authorship, including art, books, articles, music, movies, software, advertising copy, etc. A copyright gives the owner the exclusive right to create copies of the work as well as derivative works like sequels or revisions. Copyright tends to be time sensitive and typically expires 50 or 100 years after the death of the author, depending on jurisdiction
• Trademark or Service Mark – A trademark protects the symbolic value of a name, word, symbol or device that identifies or distinguishes a good from others. A service mark does the same except for services
• Patent – Grants its owner the right to prevent others from making, using or selling a unique product or invention. To qualify for a patent, the invention must: be new or novel, have some useful purpose and must not have been patented or described in a printed publication previously
• Trade Secret – Refers to a type of intellectual property that is: not known to the general public, confers an economic benefit on its holder because the information is not publicly known, and is the subject of efforts by the owner to maintain said secrecy. Trade secrets range from customer lists, product formulas, software programs, etc. The owner of a trade secret has the right to take legal action against anyone who misappropriates the secret through theft or other means
• Non-Disclosure Agreement (Confidentiality Agreement) – Allows the holder to share confidential information, such as an unrevealed product or business idea, with another party, who is then prohibited from disclosing the information elsewhere. These types of contracts are the backbone of many Startups
• Confidentiality and Invention Assignment Agreement – Obligates the signer (usually an employee) to keep proprietary information of the business confidential both during and after employment. It also ensures that any inventions, ideas, products or services related to the business that the employee develops during the term of their employment belong to the company and not the employee

Entrepreneurs are fueled by great ideas but many fall short of safeguarding them.

To give a Startup its best chance, it is critical that the appropriate form of protection for your intellectual property is obtained.

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

It’s no secret that becoming a successful entrepreneur requires grand plans and the guts to believe in them, yet it’s the fine print that ultimately makes or breaks a big idea. While business agreements and legal contracts are dryer work than brainstorming innovation, they are what enable an enterprise to grow and thrive.

Any legally binding, commercial agreement runs the risk of unnecessary disputes, loss and inefficiency if it does not clearly articulate the respective expectations, powers and terms of the parties involved.

Why badly drafted contracts cause problems

It can be tempting to rush through the contract-drafting stage in order to facilitate agreement and get to work, but a poorly written contract will inevitably steal more time and resources in the future. Ambiguous language, contradictions and presumptions open the door to a whole range of disputes, as each party will naturally interpret any inconsistencies to their own advantage. If circumstances change and the initial contract is not amended to reflect this, or if there is a term that each party unwittingly defines differently, or if specific timeframes are not provided, there is ample opportunity for misunderstandings or manipulation to occur.

Although legal contracts often appear as intimidating tomes of jargon, at their core they are simply a mutually beneficent agreement between parties – not so different from exchanges of trading cards and stickers on the playground. As you likely learned back then, a face value tit-for-tat can often have hidden consequences or pitfalls. And what happened if you wanted to swap back? Odds are those terms weren’t set. An effective legal contract not only sets out a clear understanding of what each party hopes to gain and intends to contribute, but also contingencies for potential problems and changes of circumstance in the future.

Some often overlooked issues to address when drafting a “contract”

There are a few key elements shared by all effective contracts:

Willing parties. 

It seems obvious but ensuring that all parties involved with the creation of a contract and agreement to its terms need to be able and willing to do so. That means identifying whether a contract applies to a company’s subsidiaries and whether the individuals signing the contract have the authority to do so.

Clearly defined terms. 

A glossary of defined words and phrases can seem tedious and even unnecessary at first glance, but it is crucial for making sure all parties are on the same page. What one person considers ‘reasonable’ might not be universally shared. Be sure to articulate each party’s rights as well as their obligations.

Clear contingencies. 

It is critical to state early how disputes will be managed and the conditions under which each party can terminate the contract. Contracts are legally binding, but like any agreement between two people, requirements are bound to evolve and unexpected circumstances are bound to arise. Think of a marriage. Spouses routinely adjust the expectations of one another over the years thanks to the trajectory of careers, family obligations, the arrival of children, etc. established guidelines for conflict resolution, as well as when and how amendments can be made, keep contracts relevant and healthy.

How to write a good contract

Start by creating an outline or summary of what the contract needs to accomplish. Be as specific as possible about when, how, where and why certain events should happen as well as which party is responsible for ensuring they do.

Pay attention to grammar and punctuation. A poorly placed comma or misused verb tense can provide a gaping legal loophole down the line, so double and triple check that your syntax is working for you and not against you.

Use your resources. In the age of the internet, there is no reason for anybody to conjure a legal contract from scratch. The majority of countries and states have standard clauses that must be included in certain types of legal agreements, which can provide a foundation for you to start from. No template will provide everything you’re looking for but referring to several relevant examples will give you an idea of what your contract’s final shape should be.

What Next?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

There’s a well-known saying which tells us to never mix friends and family with business. Yet, contrary to popular belief, there are instances whereby this happens successfully. In fact, Entrepreneur.com states that raising money from friends and family to fund a Startup business is actually one of the most common forms of funding there is. This is likely due to the fact that friends or family are more likely to take a chance on you based on their connections to you, than a bank or loan institution would. This article discusses the various aspects of friends and family funding for Startup businesses so you’re able to make the decision on whether or not this is an option you’d like to explore. 

What is friends and family investment? 

When you’re looking to raise capital for your Startup business, friends and family funding is an option you may want to explore. Essentially, it is a form of crowdfunding, whereby you get small amounts of money from various friends and family members to raise a more significant sum of capital. 

If this option is viable for you, friends and family investors are an attractive option due to the likelihood of not having to pay interest on your loan. There are also options to draw up an investment agreement which promises an equity stake or another forms of reward for their contribution to your capital investment. 

What are the advantages of friends and family funding? 

Let’s identify the top three advantages to financing your Startup business capital through friends and family investing.

Less formal

First and foremost the biggest advantage when gaining business capital through friends and family funding is that there would likely be a much less formal process than that of which you’d get from angel investors or a bank. 

Trust and interest-free 

Friends and family have that initial trust in you and are way more likely to invest in your business than a third party who sees things in black and white. As mentioned above, there is also a bigger chance that you won’t have to pay an interest fee back to them. 

Retain 100% control

Using this form of investing also allows you as the business owner to continue to have full control over your business.

What are the disadvantages of friends and family funding?

As attractive as this type of capital investment sounds, there are of course some downside to it too. 

Risks

Any investment retains a slight risk. This could add strain to your personal relationships should the business not succeed. 

Added responsibility 

Because you’ve essentially loaned money from your close friends and family, you might feel more added pressure of having to succeed quickly. This sense of responsibility to give a loved one their return on their investment can add a ton more responsibility to your plate than you already have,. 

Relationship problems 

When you invest with a professional investor, should things not work out the way it was anticipated to, these investors are likely to have other ventures and are able to absorb the risk. However, friends, family and your personal savings don’t have the backup needed to be able to absorb the financial risk should anything not go to plan. 

Types of family and friend funding 

There are two main forms of family and friend funding, namely business loans, which is when you’ve loaned the money with the expectation of repaying it back once your business is in a position to do so. Repayments can be setup, and interest rates too. 

The other type is a form of equity funding from family and friends which is where in exchange for the money loaned, your loved ones will get shares in the business, 

Repayment terms and contracts 

Whether or not you have an interest-free agreement with your family and friend investors, setting up a legal contract where by you stipulate the terms and conditions of the repayment is absolutely vital to protect not only you, but the investors, too.  A friends and family investment agreement is a sensible safeguard so that if anything goes wrong, you both know what the correct course of action is. 

Differences between friends and family and angel round? 

The biggest difference from an angel investor to a friend of family funding situation, apart from the family having a personal relationship with the founder, is that they might not necessarily have any knowledge around the business or be a high net worth individuals. 

Family and friends funding usually involve an average investment or about $ 23 000. 

An angel investor on the other hand, is a high net worth individual, who has a solid understanding of the Startup environment and therefore is able to make investment decisions based on facts and business outlooks, rather than personal relationships. Angel investors are also able to help your business grow by taking on an advisory role. The average investment here is around $75 000.         

Other tips? 

To conclude, keep these points in mind when deciding on the best route for your Startup funding. 

When you accrue debt for capital, you’ll have to pay it back, and in some cases with interest. However, you will remain in full control of your company. When you look at equity funding, this means a part of your business will belong to the investor and legally, they’re now your business partner. 

When you can, try to tie all payments to your cash flow. Try to avoid obligations with fixed repayment schedules. The cashflow direction is when your investor will receive a percentage of your operating cash flow until they either have been repaid. 

Know that the option to have no-voting stock in your business exists. If an investor, or a loved one wants shares, they still won’t have any say in your management decisions. 

What Next?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Being a founder of a company is no easy feat. From the outside looking in, being a founder of a company can somewhat seem like quite a glamorous title. However, that is very far from the truth. Founders are inundated with stress. And no matter what business it is they’ve started, many of them face the same issues. This article will highlight some of the things every founder should know. 

Funding is not the target, money is

Getting funded should not be your end goal. Rather having money to operate your business, is. There are various ways in which a founder can get money to run their business and it doesn’t always have to be solely relied on funding. Think here of a business loan, or a re-mortgage on your property. 

If you are able to, bootstrapping is an option that has an optimal effect on valuation. Most founders should seek to bootstrap their business when and if they can, whilst they are finding the ideal product-market fit. 

Don’t run out of money

Speaking of money, founders don’t have the luxury of saying they’re broke. When it comes to any deals being closed, be mindful of where that money is going, filter as much of it back into the business as you can to continue growing. 

Have a North Star

Defining your why is imperative to know what you are working toward. Having a north star- or a why- is what is going to make you and your team work toward that every single day.

Have great co-founders

You’re unstoppable when you have aligned great co-founders. You can’t do everything on your own. In most cases, many founders are a jack of all trades, however that is not sustainable. By having co-founders who believe in the business and afer willing to do what it takes to get it right and work hard at it, you’re setting yourself, and your business, up for success.

Know when to strike

Something not often spoken enough about it knowing when you should look for investors. An idea simply isn’t good enough. The ideal time to look for investor funding is when you have that ideal product-market fit. Investors aren’t interested in company traction, or the market you’re claiming to dominate. Make sure you don’t approach investors too early, have your product-market fit, understand your growth potential and go to them with the facts. 

Do not pitch your product 

Speaking of investors, when it comes to talking to them about your business, it’s quick to only focus on the product. However, if you’ve successfully found your product-market fit, investors want to know about your team and the market potential for growth.

Know thyself

As a founder, you’ll really start getting to know yourself on a whole other level. Your strengths, your weaknesses, your room for improvement. Make sure you are honing in on the opportunity to find yourself as a founder by talking to your peers, going to industry-related events. You’re going to want to constantly listen, learn and compare as you go to find the best solutions for your business. 

Don’t be fooled by an angel

Sometimes, it can be easy to focus on the small, short term wins, However, Startup businesses need roots that are strong enough to hold it when things don’t go to plan. Starting off slow and steady is a much more resilient plan than skyrocketing through. Go back to your idea of the north star, what are your long term goals for your business and how are you going to make that happen, today? 

Choose a VC with syndicates

When looking at venture capital, make sure you’re looking at a venture capital firm that teams up with international VCs. These firms tend to have more financial power, openings into other markets and practical knowledge at hand.These are aspects that will only benefit you and your Startup business as you plan to grow. 

Know when to hire

Hiring staff is both the most difficult and the most transformative thing a founder will ever do for their business. People are what is going to take your ideas and your product from just that to an actual business with a successful minimal viable product. It’s a balance of knowing when you hire, vs who to hire when starting a company. Tread these waters lightly with as much knowledge and understanding of who you need and when. 

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

In this day and age, it’s imperative for every business to have an online presence. Whether you’re selling online or not, your website will host an array of resources for potential customers to either understand your product or service, get to know your business and stand as a sense of assurity that you are indeed a business that’s operating. Think of it as a listing, that’s 100% controlled by you and how you want potential customers to see your business. This article will outline all the various aspects associated with establishing your website.

Register your domain name

Your domain name, in an ideal world, should reflect your products or services so that your customers can easily find your business through google.However, it’s not always possible to get a domain name that identifies your product or service, in which case the best next thing is to find one that is similar to your business name.

Find a web hosting company

A web hosting company will ensure your domain name is on the internet and accessible to users. Most of the internet service providers, such as RSA Web, Vumatel etc offer web hosting services, so we’d recommend talking to your current ISP and evaluating their monthly hosting packages.  

Choose your platform

When talking about a website platform, what we’re referring to here is the content management platform you’ll be using to build your site. There are a host of different platforms that offer quick and easy website templates to get your started. Gone are the days when you need to know how to build in code in order to have a business site. Simply pick one of these easy to use platforms to get started.

WordPress

Wordpress is an open source CMS, meaning it doesn’t cost you anything to download and begin designing. Wordpress is one of the most popular CMS’s and hosts a wide range of features that makes it an attractive option to explore. From free template libraries, to responsiveness, user-friendly and highly customisable, Wordpress is one of the very best. 

Wix

The biggest attraction of the Wix platform is that it features a drag and drop website builder. It does however have a monthly cost, and as your website expands, it could end up costing you a pretty penny. 

Squarespace

Squarespace features very aesthetically pleasing websites, but apart from the slightly higher monthly cost, it also doesn’t allow any migration options should you decide to move your website elsewhere. 

Shopify

Shopify is a platform best suited for those who are in the e-commerce industry. It has incredibly powerful ecom features, with a very easy setup process. 

A few other CMS programs worth a mention are Magento, Joomla and Drupal. EAch of these CMS’s have their own advantages and disadvantages, however, we suggest you take a look at them in more detail to see which makes the best sense for your specific business type. 

Prepare your content

Probably the most important thing is the content that will be hosted on your site. Thai is when you need to consider what you want your customers to be able to do on your website. Think about what information or transactions your customers will want available, and make sure the site is structured to make it easy for them to find and do the things they need.

Build your website

Depending on the type of CMS or website you need, this will determine whether or not you’ll need a professional website developer. If your website is purely for informational purposes, you are likely able to develop this yourself using one of the CMS programs we discussed earlier. 

However, if you are looking at having an online shop or offering other services through your website, hiring a professional can be particularly useful. 

Useful tips for creating a website

Always think about what your customers want to know, not just what you want to tell them. Seek services of a professional when and if you can. Update your website regularly to avoid any potential breaks. This includes updating your content, should any information change. Make sure you have a brand identity that is carried across through all the various elements of your website, from colours, to font, images and content.

Other essential pages

Remember these key pages that you should have on your website: 

• Blogs
• Privacy policy
• Terms of use
• Contact us page
• About us page

Building a website for your business doesn't have to be a daunting task. Whether you decide to use a professional or not, ensure that your website works on mobile devices, speaks to your customers or potential customers and explains your business in an authentic way. 

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

A limited liability company (LLC) is a simple, low-cost method of structuring your sole proprietorship or small business. Several small-business owners opt for this business structure which is known to offer more protection from personal liability. In this article, we will look at how an LLC works and the steps involved in developing one. 

What is a Limited Liability Company (LLC)? 

An LLC is a business structure in the United States that combines the elements of a sole proprietorship, a partnership and a corporation. LLC owners are referred to as members, who are regarded separately from the business entity. This means that LLC business owners or investors will not be held personally liable, nor will their personal assets be at risk should the company run into financial distresses such as lawsuits and overdue debt payments. LLC’s provide business owners with similar legal security as a corporation, but still enables the company to function as a small business.

LLC owners are able to determine their executive structures; operational processes and tax treatment, while state laws and regulations determine which types of organisations are permitted to form an LLC, who may be a member of an LLC, as well as the number of members the company may employ. One individual may form a single-member LLC, or multiple individuals may form a multi-member LLC.

The limited liability structure is also recognised as a secure way for investors to occupy shares in publicly listed companies. Shareholders are able to participate in the growth and success of a company, without the risk of personal losses in the case of a failed business.  

Forming an LLC

While the requirements differ from state to state, there is a basic structure for forming an LLC. The first step in the process is selecting a name for the organisation. Once a name has been established, an Articles of Organisation must be completed and filed with the Secretary of State.

The Articles of Organisation will establish all rights, powers, duties and liabilities assigned to each member or the sole member of the LLC. Some of the information within the Articles of Organisation includes:

• The personal particulars (such as names and addresses) of the LLC member(s)
• A statement of purpose used to describe the function of the LLC
•  The name of a designated individual who will receive any and all legal documents pertaining to the LLC, also known as a registered agent.

Once completed, all documentation must be submitted along with a filing fee dictated by the state. An Employer Identification Number (EIN) must be obtained from the IRS if your LLC intends on having employees. The forms can be obtained on the IRS website, allowing you to get an EIN in a short period of time.  

Advantages and disadvantages of LLC’s 

One of the key reasons business-owners select the LLC structure for their company is to maintain a limit on personal legal responsibility for themselves, their partners and investors. Ultimately, an LLC is meant to offer business owners with better taxation options, ownership flexibility and limited legal issues.

While LLC’s have a seemingly endless list of benefits, there are several drawbacks to be taken into consideration. The following are some of the pro’s and con’s to consider when making a decision about registering your business as an LLC:  

Advantages

• Limited legal liability for members
• Management flexibility
• Flow-through taxation: All profits are distributed to company members who are then taxed at their personal level, which avoids double taxation such as with corporations.
• Significant privacy
• Flexibility to  distribute profits and losses to members at own discretion

Disadvantages 

• Costs more to form than sole proprietorships and general partnerships
• Transferable ownership is harder to accomplish
• Limited lifespan: While some states allow for a perpetual lifespan, the default for an LLC is to dissolve should an original partner die, leave the company or become bankrupt
• Public trading difficulty: An LLC cannot be publicly traded, but a loophole exists whereby the LLC can be structured as a publicly traded partnership
• May be subjected to additional taxes and fees 

What are Limited Liability Companies (LLC’s) used for? 

The LLC has 3 main advantages:

Prevents owners from being personally responsible for debts 

LLC owners will not be held personally liable for outstanding company debt. Instead, in the case of bankruptcy, the LLC’s assets will be sold and used to pay creditors. Following bankruptcy, all remaining debts are wiped out and the LLC must be formally dissolved.  

Allows profits to be passed to owners for tax 

The LLC structure allows members to avoid paying double tax through pass-through taxation. This means members are taxed from their personal profits as earned through the company. 

Different tax treatments 

Flexibility to choose between various tax treatments is a huge selling factor for the LLC structure. LLC members have the freedom to select between the tax systems of sole proprietorships, partnerships, S-Corporations or C-Corporations. 

Are Limited Liability Companies Taxed Differently Than Corporations?

Yes. C-corporations are liable to file a corporate tax return and in turn, pay corporate tax on the company’s profit. Should the corporation distribute the profit to shareholders, they are liable to pay personal income tax on those allocations. C-corporations usually end up paying more taxes than S-corporations or LLC’s because profit distributions are taxed at both corporate and personal shareholder levels. 

Recap of how to set up an LLC 

Choose a name 

Ensure that your business has a unique name that does not already exist. You will be notified by the state if the name you’ve selected is suitable. Also consider that in accordance with regulations, the term LLC must appear in the name of your business.  

Create and file articles of organisation 

The Articles of Organisation are fairly simple to complete and will include basic information required by the state. The document name may vary from state to state and is considered the basic outline for establishing your LLC. 

Appoint a registered agent 

Assigning a registered agent is another state required step in the process. The selected individual will act as a representative for the LLC and will be responsible for receiving all legal documents. The registered agent is usually the owner or chief member of the LLC. 

Payment of required fees

Administration fees for registering an LLC differ from state to state and will be specified upon submission of the necessary documents. 

Publish a notice of intent to publish an LLC

Although information is now shared using modern communication, some states still require business owners to publish a notice in local newspapers to announce the intention to form an LLC, or upon establishment of the business. Make sure to check state requirements for publication specifications. 

How can an LLC benefit a Startup? 

The LLC structure is a top choice for many Startup business owners owing to the clear advantages that come with protection against personal liability, the benefit of flow-through taxation and the freedom of management flexibility. Startup businesses are at more risk of failing than existing entities and funding can often be limited, which is why an LLC structure could be the smarter long-term option. Small-business owners gain the advantage of limited liability offered by some corporation structures, without the added cost and intricacy. The added benefit of an LLC structure within the Startup landscape is having LLC included in the title of the business, giving it a more official and legitimate feel. 

What next?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

For early stage Startup businesses, accelerators and incubators offer great options to build  the company. There are many Startup founders who often turn to these programs in order to accelerate their business growth. This article will help you understand the difference between the two, what they offer and if these are good options for you. 

Accelerator Vs. Incubator: What's The Difference?

Startup incubators are best suited for Startup businesses that have just refined their business idea. The incubator program is made to help owners refine and build their company from scratch. Whereas, accelerators are aimed at Startup businesses who already have a minimum viable product and resources but have been experiencing slow business growth.

These two options are built for businesses in different stages, but can be used interchangeably throughout your business growth journey.  

Startup Accelerators

In this section, we’ll be discussing all you need to know about Startup accelerators. Key knowledge points include, understanding the application, the details of the program, capital investment and the various benefits associated. 

Before we dive in, it’s key to note that a startup accelerator program offers mentorship, capital and investor connections in order to take Startups with impressive MVP’s and rapidly explode their business growth.   

Is an accelerator program right for your Startup?

Now that you understand exactly what a Startup accelerator is, and who it’s aimed at, the question of is it right for you, might pop up. If your startup already has paying customers, and early signs of product-market fit but your growth is stunted, this might be a great opportunity for your Startup business. Thousands of startup businesses apply for this program, and since there is a limited amount of capital and mentorship available, it’s important to know that applying might not be enough. Startup accelerators will often take a cut of your equity in order to proceed with the process.

Duration of Startup Accelerators

 Think of accelerators as just that. They are intense and fast-paced programs, ready and armed to rapidly grow your business within a duration of roughly 3-6 months. 

The Application 

The application process will ask for specifics on your idea, market, traction, team, and other aspects vital to success.From there you will be asked for an assessment, which involves screening related to investability, revenue potential, and overall strength of the product/service offering.

The Interview

Once you’ve passed that, it’s time for the interview. This is when the program wants to know more about your existing team, product and any traction that you’ve experienced.

The Evaluation 

The evaluation follows, whereby you’d provide documents to prove your statements about revenue, legal standing, or any claims made about the company. The final step is acceptance! 

 Investment Capital

Let’s face it. Many Startups find themselves in positions where the only thing standing in their way is money. Guidance and mentorship is invaluable, but the majority of the time, what’s really needed is investment capital.

Benefits of an Accelerator

Networking

The Startup Accelerator program will open many networking opportunities for you with well-established companies and influencers.

 Personalised guidance 

Accelerators work with seasoned founders and successful business men who may even end up investing in accelerated Startups at the program’s end.

Collaboration and partnerships with innovative Startups

Most startups are facing similar problems, and these programs give you the ability to connect with Startups facing similar issues, and how to overcome them together. 

Startup Incubators

As previously mentioned, Startup incubators are best suited for Startup businesses that have just refined their business idea. Incubator programs exist in order to mentor, nurture and grow your startup for longer periods of time. 

Accelerators want to pay close attention to each Startup, whilst incubators provide ad-hoc help with legal and business services, as well as help turning an idea into something with product-market fit capabilities. 

Duration of a Startup Incubator

The length of a Startup incubator program can be anything from 6 months to 6 years.  

Application Process

The application process isn’t as intense as that of an accelerator program. Incubators will rather focus on advancing Startups by improving the  business as a whole, rather than just taking it to the next level. This also includes businesses that haven’t had rapid growth or signs of potential scalability.

Investment Capital

Incubators aren’t there to offer capital to Startups. Think of them as providing your business with  office space, mentorship and partner opportunities.  

Is an incubator program right for me? 

Incubators are longer-term arrangements, and are open to working with Startups that haven’t achieved product-market fit or got their first 10 customers.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

With the steady advancement of science and technology, the trade industry has cleared a path for innovative methods and modern ways of conducting business. The use of Intellectual Property (IP) has emerged as a foundational asset for businesses in need of funding. Much like tangible assets are used as collateral against a bank loan; professionals seeking financial assistance have the option of pledging the rights to their IP when applying for credit or government subsidies. In this article, we take a closer look at how IP can be used as financeable collateral for growing and existing businesses. 

What is intellectual property financing? 

Businesses around the world are becoming increasingly aware of their ability to sell, license or use IP rights as a way to secure capital. Intellectual property financing acts as a vehicle for companies to secure financial assistance by using their IP assets such as design rights, trademarks, patents, copyrights and trade secrets to secure access to credit or business subsidies.

Small, medium and large corporations are using their IP assets to acquire capital for their businesses while more banks and lending organisations are permitting the use of IP as the security deposit for a loan.  

Although it is intangible, the rights to IP can be a hugely valuable asset in the modern economic climate, as it often offers a competitive lead against other business entities and can increase company asset value. Companies who stand to benefit most from IP financing include Startups, companies with valuable trademarks and older, established businesses who are looking to expand. 

How can IP be used as collateral? 

Using IP as collateral for a loan is one of many ways to tap into IP-backed financing.Though not always the case, this method has often been used as a final show of faith by companies on the brink of bankruptcy. When there are no longer tangible assets to pledge against a financial loan, a company’s IP is considered and ultimately approved based on its valuation. For example: using the patents of a successful company’s trademark item as collateral for a bank loan. In this case, the bank is authorized to seize the patents if the client is unable to pay their debt, making the use of IP as collateral a high risk situation.

Other ways of using IP as collateral includes pledging trademarks and trade secrets, as well as auctioning IP. A valuable portfolio of IP must be sufficiently protected and managed, with a clearly outlined strategy as to how a company may use IP assets to achieve their financial goals. 

IP-backed Loans 

For Startup businesses and smaller organisations, IP-backed loans are a great way to gain access to the funding needed to advance their businesses. When lacking tangible assets and capital, an IP-backed loan provides a modern solution to an age-old problem faced by business owners: financial support.

The sum of money a business owner is permitted to borrow from a bank or external lending organisation on the basis of an IP-backed loan is determined by the overall value of the company’s IP portfolio, and the potential risk associated with the transaction. Because the value of IP is based on speculative suggestion, experts are brought in to conduct a thorough investigation of the necessary criteria to approve an IP-backed loan. Any asset provided as the collateral for a loan only has value if it is correctly secured and well documented. Safeguarding the security interests for intellectual property is not as clear-cut and regularly conducted as with tangible assets such as property.  

IP Sale - Leaseback 

The definition of leaseback is described as a financial transaction whereby an individual or entity sells an asset, then leases it back on a long-term basis. In essence, the asset is still available for use by the original owner, but a legal change of ownership has taken place. An IP sale-leaseback involves an investor who has acquired IP from a company, who then charges the original owner a leasing or licensing fee for use of the asset. In most IP sale-leaseback agreements, the seller is given the option to repurchase ownership of the IP within a set and agreed upon timeframe. 

IP Legal Finance 

Due to the rapidly evolving world of business and innovation, more and more cases of infringements on patents and trade secrets are emerging. Through the IP legal finance structure, IP owners have the option to access funds in protection of any possible future legal battles pertaining to infringement and contravention lawsuits. Backed up by solid results, IP legal finance has become a favoured medium of financing for investors. The funds provided by the legal finance structure will cover general operational expenses, as well as administrative fees used to build a strong case against the opposition.

Advantages of IP Finance 

There are many advantages to IP finance, which includes: 

• There are little to no fees associated with IP finance. Additionally, recapitalization by means of IP finance allows for an increase in liquidity of projects with compensation that outweighs any expenditure.
• Gaining a competitive edge over other businesses in the same field through access to exclusive IP
• Enhances company value and creates flexibility to restructure a company by utilizing IP finance facilities that holds significant leverage
• Helps to obtain funding for a business

Disadvantages of IP Finance 

While there are several advantages, there are significant disadvantages to IP finance too: 

• Owing to its unique structure, IP Finance can often prove to be more expensive than other financing options in the long-run.
• The valuation processes used in IP financing is commonly based on a value that will give way to a less favourable financial figure for borrowers and often benefits the lender in the case of a default (liquidation)  
• The value of IP assets are usually based on the demand for it in the secondary market. But lending organisations can find it challenging to find prospectively ground-breaking IP 
• Technical defaults in the financing arrangement could lead to a failed arrangement and eventually, reduced quality of intellectual property and assets associated with the IP. 

What Next?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Achieving success in the world of innovation can be an intimidating prospect, but developing a reliable plan of action can help to ensure a productive and dynamic experience. This article will take a look at how you can transform your unique idea into a marketable product, what it takes to get there and the potential pitfalls you may face as a product or service entrepreneur in the Startup phase of your business.

Research your idea

The baseline of developing any great idea begins with thoroughly conducted research aimed at helping you better understand the strengths and weaknesses of a particular business model. The goal here is to gather relevant information, evidence and data to facilitate a successful journey from inception to launch, and to help you avoid wasting valuable time, money and resources. The framework for well-conducted and efficient research can be broken down into these steps:

Do a thorough business analysis

Simply defined, business analysis is an initial phase of new product development that investigates the feasibility of the business and whether it has potential for success. When done correctly, the business analysis will provide insight and help to predict any possible problems. As a result, the most fitting solutions can be identified and put into action beforehand, reducing additional time spent on issues in the future and helping your business to actively achieve its goals.

Define or describe your idea 

Being clear-cut and precise will be a crucial tool in setting up a roadmap for your business. Once you have defined the problem you are solving with your product, stay focused on how to best achieve the intended results and avoid veering off into too many directions. Trimming any excess will help you to evaluate the limitations of what your business has to offer and make it possible to perfect the focal point of your idea. Researching consumer needs, prioritising specific features and testing theories will help you hone in on the particular capabilities of your new product.

Identify your market

Targeting the right audience is critical when taking a new product to market. Without this knowledge, you run the risk of missing the mark when the language and marketing tools you make use of does not appeal to your intended audience. This is why clearly defining your target market will inform the way you communicate. If your product is similar to another one on the market, it would be helpful to tailor your message around what makes your product unique and how it measures up to your competition. When you understand your customer, you are able to speak directly to their needs.

Think about which outlets they use to gather information on their purchases, what kind of language they respond to positively, and the level of demand there is for your line of product. Brainstorming, researching and network building will be highly beneficial to uncover more information about the broader market, which will help you formulate new and inventive ways of drawing attention from your ideal consumer.

Build your prototype

A preliminary version or ‘prototype’ is used to evaluate the functionality and performance of your product or service. This stage of the process allows for maximum creativity and further innovation as you begin to see what works, what doesn’t and how to fix the issues.

Working prototype

Whether it’s made from household tools or specialised equipment, a working prototype will act as the ‘test subject’ for your project. Creating a tangible model will aid in putting all the previous steps into action as you place your product under rigorous testing. It is important to have a working prototype (essentially the first version of your completed product) as opposed to a visual or digital representation.

This is to ensure that you can easily identify any defects and go through a refining process. In fact, working prototypes are known to fail when undergoing initial testing, allowing designers to go back to the drawing board during the preliminary phase. Depending on budget, design and accessible resources, developing a working prototype may take a long time, but can be the most exciting and creative part of the process before moving on to produce mass quantity.

Test test test!

Don’t limit the testing process! You need to be sure that your product can withstand various measures of testing and most importantly, if your design holds up to other products available on the market. Allow a select group of individuals with different lifestyles to test the product, put it under the most extreme conditions possible for a product of its kind and pay close attention to the results. Is it strong? Faulty? Does it need reinforcing? The testing phase should last as long as it takes to become perfect.

Listen to your users

Consider the feedback you receive from users as your most valuable source of information. These are the people who will tell you how well the product works (or not), what could use tweaking and perhaps influence ideas for future innovations. Having complete insight as to how your customers view your product and company is invaluable, so make it easy for them to share their thoughts and reviews on all available portals, especially your website and social media pages.

Marketing strategy and plan

A solid marketing strategy provides your business with a great advantage once your product hits the market. By putting a strategy in place, you will have a clear idea as to how, when and where your product will be advertised, how to make optimal use of your resources while ensuring your branding continues to drive the sales point home. Sales and marketing strategists are skilled at drawing up an outline suited to your specifications.

Launching your product

Timing is the number one factor to consider when deciding on a launch date for your Startup. A big percentage of businesses fail due to ill-timing. Create a product launch outline that includes pre-launch presentations, media and promotional strategies, social media campaigns and a launch-day strategy. Be sure to build sufficient excitement and anticipation leading up to the big day.

Review your product

Once you’ve brought your idea to life and your product has successfully made it to the market phase, it’s time to start thinking ahead. Continue doing the necessary research to stay ahead of the curve and remember that your invention could be considered ‘old news’ within a year. Stay objective; keep reviewing the product you’ve created and work to implement the necessary strategic changes to remain a strong competitor.

Protect your idea

Once your product has been developed, launched and well-received, it is advisable to obtain the most suitable intellectual property to protect your idea. There are a number of ways to do this; including protection of copyrights, circuit layout rights, confidential information and trade secrets as well as formally registering your intellectual property to protect yourself against experiencing intellectual theft.

What is bringing your product to market?

Remember, bringing a product to market is a series of steps taken in order to take an idea and transform it into something marketable and sellable. As mentioned before, each step of the process involves critical and fundamental aspects of making a successful product. Research, networking, seeking viable investors, testing and building strategies are all part of bringing a product to market.

Evaluate the cost of manufacturing

Manufacturing is one of the last steps before distributing the final product and should always be thoroughly researched. Comparing the pros and cons between competing manufacturers, evaluating the total cost of producing your product and even consulting with a professional in this area will help you make the best possible decision based on your budget and materials.

Connect with other entrepreneurs/ form partnerships

Develop lasting relationships and partnerships with other entrepreneurs, Startup owners and successful businesspeople. Create a network of likeminded individuals who are willing to share ideas, offer support and introduce your business to potential investors. Connecting with and being part of such a community should be considered a long-term investment.

Be reasonable and realistic

Be patient – it won’t happen overnight. Be realistic in your calculations, budget and timeline and seek professional advice when necessary. Be as thorough as possible and stick to short-term goals in order to reach the bigger milestones. Don’t become too frustrated when you run into a problem, but use it as a learning curve.

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

A business-owner’s relationship with their board of directors can often be a strained one, but maintaining control of the company is critical for its success. When hardworking, opinionated, goal-driven people are put together to make decisions, it is inevitable for varying ideas to emerge. So, as the leader of your company, how is it possible to keep disagreements from escalating into conflicts that may threaten the company’s progression? Let’s take a look at some of the best methods to maintain control of your company’s board.

Founders or CEO’s are often thrown in at the deep-end when it comes to people-managing within their companies. Many are used to working on their own and making all the decisions solo - but as the company grows, structural changes are bound to take place. One of these changes is the implementation of a board of directors made up of investors and shareholders who all have interests in the company.

This dynamic can often leave the CEO feeling confused as to how the board should be managed, while trying to stay ahead of business operations and taking charge of the decision-making process. There are a few basic steps to consider when working out a strategy for keeping a steady hand on the company board.

Selecting fitting board members

A seemingly obvious step, selecting board members is a crucial stage in setting up the board structure. However, selecting the most fitting members for your board is perhaps even more significant. Ideally, selecting investors and shareholders to generate funds for your business should be about more than just the money, but also about what they are able to contribute toward the success of the company.

It is advisable to select board members who are experts in their field, can add value to the company, and who are completely in-tune with your vision for the company. Seek to fill the board with people of different skill-sets and expertise (think marketing, finance, investment) to create a diverse and professional group of people who are not only able to contribute to the company’s success, but who can act as advisors when necessary.

In addition - by curating a board of efficient and credible members, your company will instantly be recognised as a credible organisation.

Election of chairperson

The chairperson of the board, also known as a chairman or chairwoman, is an important position of leadership who is elected by the board itself and serves a specified tenure. The role of a chairperson is to preside over board meetings, ensure that business is conducted in an orderly manner and help the board reach an amicable agreement. Working closely with the CEO, the chairperson should be selected for their professionalism, leadership skills, the ability to remain impartial and the ability to ensure the smooth flow of all board communications.

Voting Power

When it comes to making significant business decisions, the board will have a considerable say as to how the decision will go. How the power of voting is distributed amongst board members should therefore be carefully measured. Consider the size of your board against the size and scale of your company – does it make sense? Who will have superior voting rights? Will certain investors have more sway? Consulting with legal advisors will help you understand how voting power can be retained by determining a board structure best suited for the company.

Effective Board Meetings

Take control of board meetings, remain confident and clear in your goals and vision and solidify your status as the leader. Organized, efficient and concise meetings are the best way to reach your board members with a message while providing ample opportunity for discussion and debate. Time management is key. Nobody wants to sit in a meeting for hours with someone repeating the same thing over and over. Streamline meetings and stick to an effective agenda with the help of the chairperson.

Communication

A key aspect of retaining control over the board, as well as the cornerstone of a great working relationship, is an open-communication policy. By setting out expectations and clearly outlining the roles and commitments to which every board member must adhere, there is little room for confusion, misunderstanding and conflict. By keeping communication regulated and clear, everyone is on the same page and the end goal can be reached without divergence.

Remember that a board is made up of different people with varying backgrounds and expertise – communication is the key medium through which all members are able to understand one another and become aware of one another’s goals, values and business interests.

Network and Build Relationships

An important aspect of being a good leader and business-owner is taking advantage of any opportunity to develop unique working-relationships with board members and networking with board members’ connections. You never know when you could be talking to a new potential client or partner and the further news is spread about your company – the better! Remember to keep a close eye on the legal aspects of such conversations (regarding confidentiality) and to keep matters of personal business operations close to the chest. Some companies have even implemented a process where board members must introduce the company to a specific number of contacts as part of their board duties.

Financial control 

Concerning financial matters, you should pay close attention to the following and settle all such matters with the help of a legal professional before an agreement is entered into with members of the board:  

• Valuation and pool allocations
• How much investors will receive from liquidity 
• Double-dipping
• Staying in control of when you want to sell the business

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Managing Conflict and Disputes 

Differences between business partners are inevitable. It is crucial to ensure that such differences are resolved in a manner that is quick, amicable and cheap. Doing so will ensure that parties continue collaborating on good terms, without experiencing a significant drain on time and money.

10 basic pointers for dispute avoidance in Startups 

With the harmful effects of disputes in mind, we set out 10 basic pointers for dispute avoidance.

1. Communication is key

Parties should always provide each other with feedback, especially if they feel that something is not right. It is better to communicate constantly and to nip problems in the bud, as opposed to letting them brew and escalate. 

2. Do not focus on the problem

Focus on the solution instead. Difficulties between parties should be approached in a collaborative manner. Instead of focusing on the problem and blaming each other, the focus ought to be on finding a way to resolve the difficulty and continue nurturing the business relationship. 

3. Contracts should be clear and comprehensive

Contracts should set out the parties’ respective rights and obligations clearly and comprehensively. There will be little room for doubt and dispute when the terms stipulated in the contract are indubitably and accurately reflective of parties’ intentions. 

4. Agree clearly in writing

While contracts may be formed verbally or in writing, it is recommended that contracts be set out in writing for evidentiary purposes. Where there are no clear records of what was agreed upon (in oral contracts or otherwise poorly drafted contracts), the lack of clarity gives rise to a possibility of differing contractual interpretations, which in turn sets the stage for a costly legal dispute should parties fail to see eye to eye or compromise.

5. Read your contract

Parties should read their contracts before signing them, in order to address any points of deviation before setting their respective rights and obligations in stone. 

6. Hire a lawyer

If you cannot decipher your contract or are unsure about your rights and obligations, you should hire a lawyer to help interpret your contract and explain your rights and obligations. A lawyer is often the most effective and reliable tool that you can utilize to safeguard your interests. 

7. Uphold your end of the bargain

As long as the contract is clear and comprehensive, parties should have no room for dispute if they perform their contractual obligations in accordance with the terms of the contract. This would entail briefing your personnel properly, so that they may comply with any processes that may be set out in the contract. 

8. Have clear contractual provisions with respect to waivers

There may be times when you decide to waive a counterparty’s breach. Contracts should set out clearly the effects of each waiver, and how each waiver should be given. A commonly adopted position is to specify that waivers are to be given in writing. This reduces the prospect of inadvertent waiver of rights.

9. Implement a multi-tiered dispute resolution mechanism

The contract can set out that disputes are to be resolved through a multi-tiered dispute resolution mechanism. The initial steps of this mechanism may entail good faith discussions between representatives of each party. This may help in ensuring that disputes are resolved in an amicable manner and alleviate the risk of disputes being resolved through expensive means (e.g. litigation, arbitration).  

10. Be organised

Make sure that all contracts, as well as correspondences with respect to each contract, are organised and stored neatly. This ensures that these documents are readily available for your reference, when any doubts about your rights and/or obligations arises. 

Informal dispute resolution mechanisms

Business partners should agree on informal dispute resolution mechanisms before engaging formal dispute resolution mechanisms. Examples of informal dispute resolution mechanisms include:

● Consultations between the management teams of the business partners

● Mediation

Informal dispute resolution mechanisms are crucial in avoiding disputes, as traditional means of dispute resolution such as litigation and arbitration tend to be more adversarial and invasive.

The adoption of such traditional means of dispute resolution could place an even greater strain on the relationship between business parties, and could even spell the death knell for further engagements. Another benefit of informal dispute resolution mechanisms is that they are far less costly. Traditional means of dispute resolution tend to be costly, and could strain parties’ financial resources if the dispute proves to be long-drawn.

What next?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Joint and Several Liability of Founders

Joint and several liability is a legal term which outlines the shared responsibility within a lawsuit. If two or more parties are jointly and severally liable for a  wrongful act, each one of them can be sued independently, and will be independently liable for the injuries from the act as per common law.

Liability clauses

There are 3 main types of liability clauses, namely “unlimited liability clauses”, “limited liability clauses” and “no liability clauses”.

Unlimited liability clauses

“Unlimited liability clauses” set out scenarios where a party’s liability to its counterparties is unlimited. You need to ensure that the scenarios under which your liability is unlimited is kept to a minimum. Failure to do so could result in crippling losses for your business.

What do unlimited liability clauses cover? 

● Breaches of an extremely egregious nature.

● Scenarios stipulated under applicable law where a person’s liability is unlimited. 

Limited liability clause

“Limited liability clauses” set out caps (or any other forms of limitations) on a party’s liability under various circumstances. When reviewing “limited liability clauses'', you should pay special focus on the following areas:

● The levels of the liability caps/limits – are they too high/too low?

● Exceptions to the liability caps/limits – are there any forms of liability that are not subject to the caps/limits, and should they nevertheless be subject to the caps/limits?

No liability clause

“No liability clauses'' set out scenarios where a party’s liability to its counterparties is excluded. When reviewing “no liability clauses'', you should pay special focus on the following areas:

● The scope of scenarios where liability is excluded – is the scope too wide/too narrow?

● Indirect losses – while it is common for a contract to stipulate that parties exclude liability for ‘indirect losses’ (generally defined to mean losses that are remote and/or unforeseeable), does the contractual definition of ‘indirect losses” nevertheless encompass any forms of direct loss?

Indemnities

An indemnity is a contractual obligation on a party to compensate its counterparty for losses that the counterparty may suffer as a result of the occurrence of certain events. Indemnities are generally located in contractual agreements where the indemnifying party agrees to compensate the indemnified party for losses that the latter incurs arising out of an agreed state of affairs. 

They are used as a means of legal protection against the risks associated with a particular state of affairs and typically arise in investment documents or commercial agreements.  

Things to review when in indemnities in a contract

The nature of the events that you are required to provide an indemnity for 

As a general rule of thumb, you should not be providing indemnities for events that are beyond your control, or that occur due to no fault on your part.

The extent of losses that you are required to indemnify 

Are the losses that you are required to indemnify potentially very high?

Who do you indemnify? 

Does the indemnity apply only to the counterparty? Or does it extend to other persons such as the counterparty’s affiliates, shareholders and personnel?

Depending on the probability of risk, it may be prudent to limit your indemnification obligations, in order to reduce your potential contractual liabilities. On the converse, being the indemnified party can be useful in offsetting any potential losses that you may suffer as the risk is transferred to the other party.

As a rule of thumb, in deciding whether to agree to any request from another party for an indemnity, you should ascertain which party has more control over the indemnified event. It is usually reasonable for the party with greater control over the event to be the indemnifying party.

What Next?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Representations and Warranties

Found in most contracts, representations and warranties are contractual assurances about matters that the beneficiary of the warranty and / or representation can rely on - for example, the quality of products. If a representation or warranty is breached, the non-breaching party may then sue for damages or losses arising from such a breach or perhaps even terminate the contract.

The giver of warranties and representations will want to ensure they are not exposed to unlimited liability scenarios where the same are breached. The giver of a warranty and/or representation may specifically look to reduce their liability - for example by their liability (owing to the breach) to a fixed sum. Parties may also wish to consider excluding liability for specific types of damages and/or for damages that are disproportionate to the economics of the transaction.

When are Representations/Warranties (“R/W”) used?

R/W’s are typically used by a contracting party where it cannot ascertain a particular state of affairs with respect to its counterparty – under such circumstances, the contracting party may require its counterparty to provide a R/W in relation to that state of affairs; or when it requires further performance assurances from its counterparty with respect to the performance of certain obligations – the contracting party may request for the counterparty’s obligation to be elevated from a mere contractual obligation to a R/W. 

The importance of representations/warranties

Where a party breaches its representation, the other party has the right to rescind the contract – this entails terminating the contract and restoring parties to their respective positions prior to their entry into the contract. 

Where a party breaches its warranty, the other party has the right to claim monetary damages against it. 

Typically, commercial contracts stipulate that a party “represents and warrants” a certain state of affairs, or that it will perform an obligation. Where the party breaches such “representation and warranty”, the other party has the option to either rescind the contract, or claim monetary damages against the breaching party. 

When reviewing the scope of R/Ws in a contract, you should examine the following:

● Are the obligations covered by these R/Ws critical enough to be elevated to such a status?

● Are you comfortable with providing the counterparty with its requested R/Ws?

Obtaining representations and warranties (R/W)

Where parties engage in discussions over IP, the holder of the IP license is likely to make certain assertions with respect to the IP. Where the IP in question is crucial, the licensee may wish to consider requesting the holder to undertake certain R/Ws with respect to these assertions.

R/Ws are a form of performance assurance. The effect of undertaking an R/W is that where such assertions are found to be untrue, the assignee would be entitled to a wider range of remedies. A breach of representation would generally entitle the innocent party to rescind the contract. A breach of a warranty would entitle the innocent party to monetary damages. Accordingly, where an R/W is breached, the assignee may have the option to claim monetary damages or to terminate the contract.

What next?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Dealing with Investors

Securing significant investment is crucial for a startup business’s development and survival. Entrepreneurs shouldn’t be afraid to hold out for the right deal on the right terms. Businesses should make sure that the legal language in any transaction documentation doesn’t create long-term problems.In this article, we’ll be covering some key points to note regarding shareholders agreements with dealing with investors. 

What is a Shareholders’ Agreement?

The importance of the Shareholders’ Agreement is undisputed in setting out the rights and obligations of shareholders in a company. A well drafted shareholders’ agreement has multi-fold capability as it establishes the rights of the shareholder, protects their investment in the company and governs how the company is managed.

As your start up is likely to have more than 1 founder, having a shareholders’ agreement can help you to seal the specific rights and obligations of you and your founder(s) and set out the percentage of ownership shares that have been assigned. In this article, we’ll share with you the basic insights that can allow you to harness the business-enabling potential of having a Shareholders’ Agreement and give you piece of mind in ensuring your rights as Founder are safeguarded.

10 Benefits of a Shareholders’ Agreement: Why do YOU need it?

1. Sets out Expectations

Stipulating shareholders’ rights and responsibilities will allow all shareholders to be on the same page and provide them with a good understanding of what they’re buying into.

2. Protects Shareholder Rights 

A well drafted Shareholders’ Agreement will set out the rights and obligations of all current shareholders, offering enhanced protection to you and your shareholders in the event that a decision is made to offer new shares to a third party.

3. Diminishes Disputes 

No relationship is perfect, even amongst Shareholders. A comprehensive Shareholders’ Agreement can help to clearly set out the terms and procedures such that shareholders are in agreement. Any arising disputes will be dealt with in the dispute resolution procedures agreed among shareholders, preventing the need for gratuitous legal action.

4. Regulating the raising of capital for your startup

A reliable Shareholders’ Agreement can endear you to investors by setting out specific investor rights and granting enhanced investor protection.

5. Increase Company’s Competitiveness 

Your Start up’s competitiveness can be protected and even increased through the use of restrictive provisions like confidentiality and non-competitive obligations accounted for in your shareholders’ agreement.

6. Privacy

Unlike the company’s constitution, the Shareholders’ Agreement will remain private and confidential and cannot be accessed by creditors or employees. This element of privacy would also allow for sensitive commercial details to be included in the Shareholders’ Agreement.

7. Protection of Minority Shareholders

Minority shareholders can better negotiate and protect their rights as an amendment to the Shareholders’ Agreement can only be carried out with the agreement of all shareholders party to the Agreement. In contrast, a company’s constitution can usually be amended with a 75% majority, marginalising minority shareholders.

8. Exit Strategy

Should the shareholders “fall out”, the Shareholders’ Agreement can regulate issues such as share valuations and rights to pre-emption in departing shareholders. This would ultimately reduce the conflict between the shareholders and prevent the stagnation of the company during such an exit.

9. Company Financing

The Shareholders’ Agreement will outline the manner in which the company will be financed (Debt & Equity financing).

10. Company’s Dividends

The Shareholders’ Agreement can settle the dividend policy of the company. Issues such as when the dividends will be payable in addition to reinvestment options in lieu of a dividend payable can be established.

Confidentiality

Startups may be required to disclose a wide range of confidential information to their personnel, as well as to their own service providers and business partners. Such confidential information could be extremely valuable to the business – they may entail trade secrets or novel ideas. Indeed, the value of such confidential information often lies in the very fact that they are confidential.

Yet, Startup owners may fail to take adequate steps to protect the confidentiality of such sensitive information, and this could lead to a massive erosion of profits.

Document confidentiality obligations clearly

Startups may be required to disclose a wide range of confidential information to third parties, including their personnel, service providers and business partners. Such confidential information could be extremely valuable to the business – they may entail trade secrets or novel ideas. Indeed, the value of such confidential information often lies in the very fact that they are confidential.

It is thus key for Startups to document such confidentiality obligations clearly, so that such confidentiality obligations are lent enforceability.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

What Agreements Do You Need?

When you’re entering the world of business, understanding all the legal necessities involved can be daunting. When it comes to legal agreements, it is a common question asked among those who are unfamiliar with contract law, and the legal protections of a written agreement.

In this article, we will be going through a few examples of legal agreements necessary to a business.

What is a legal agreement?

A legal agreement is a written document that will identify the parties’ roles and responsibilities under the contract. Once the written document is signed and becomes legally binding. This means that if either party fails to perform the duties under the legal agreement, they are in breach of contract.

Types of legal agreements 

Scope of goods

Each party needs to be clear about the scope and nature of the goods that are being supplied. The supply of goods contract would need to set these out in sufficient granularity and precision.

Details that ought to be set out include:

• Quantity of goods supplied
• Specifications of the goods supplied
• Name of goods

When contracting in the position of the distributor, it is important to examine these details carefully, to ensure that you get exactly the goods you need to fulfil any downstream obligations.

Distribution channels

A manufacturer may specify certain channels (e.g. online stores, brick and mortar retail shops etc.) through which the distributor may distribute the goods.

In this regard, it would be prudent to examine provisions with respect to distribution channels to examine the following:

1. Is the manufacturer’s list of distribution channels exhaustive (i.e. can the distributor distribute goods through channels beyond that which are stipulated in the manufacturer’s list)?
2. Does the manufacturer have a right to change the list of distribution channels?
3. Is the distributor required to source for, and recommend, new distribution channels to the manufacturer?

Marketing

As mentioned in the introduction, apart from general obligations with respect to the distribution of goods, a distributor may also be required to undertake certain marketing obligations, in order to aid the manufacturer’s market penetration efforts.

Issues to examine with respect to marketing provisions may include:

• Whether there is an obligation on the distributor to set aside a fixed amount of money for marketing efforts in the region;
• Whether there is an obligation on the distributor to use marketing material prescribed by the manufacturer;
• Who bears the costs of advertising efforts
• Who determines how many campaigns to launch in any given period

Title/risk

“Title” relates to the legal rights of ownership. A party with “title” in goods has the legal rights of ownership in relation to such goods.

“Risk” relates to the bearing of risk in relation to loss of and/or damage to goods. A party that bears the “risk” in goods bears the risk of loss and/or damage in relation to such goods.

It is important to note that both “title” and “risk” are distinct concepts. “Title” in goods can pass from one party to another without “risk” following suit, and vice versa.

Typically, a recipient of goods would prefer to have “title” in goods as quickly as possible and to receive “risk” in such goods as slowly as possible.

The converse will be true for a supplier of goods, i.e. retain title for as long as possible and pass risk to the customer as quickly as possible.

Product recall

In the unfortunate event that certain safety hazards are detected in the manufacturer’s goods, the manufacturer may be required to recall products to comply with applicable laws.

In this regard, distribution agreements may set out various provisions with respect to product recall. It is thus worth examining provisions with respect to product recall – common issues that are worth focusing on may include:

● Is the distributor required to take steps to assist the manufacturer with recalling products in the relevant territory? If so, what steps is the distributor required to undertake?

● What is the process for initiating a product recall?

● What is the flow of title and risk in products that are recalled, viz-a-viz the distributor and the manufacturer?

Intellectual property license agreement

Over the course of operating the business, you may wish to assign certain intellectual property rights (“IPR”) to the company, or you may wish to procure the assignment of certain IPR from third parties to your company.

This is particularly pertinent where the business is extremely intellectual property intensive, and where certain intellectual property could prove extremely valuable to the business.

As a general rule of thumb, it is good practice for a Startup founder to assign his/her IPR to the Startup, so that the Startup may have the assets required to be a viable business vehicle.

Leasing agreements

At some point, your company is likely to require an office space. Under such circumstances, your company is likely to need to enter into a commercial lease agreement with a landlord.

Landlords will typically have their own standard form commercial lease agreements that you would be required to execute.

It is worth noting that as a Startup in the genesis of its operations, the landlord is likely to be in a stronger bargaining position and provisions in commercial leases tend to strongly favour the landlord.

It will nevertheless be prudent to review the proposed lease agreement that the landlord provides to you, to ensure that you are not short-changed and do not sign up to any extremely onerous obligations.

Service agreement

Where your company is in the business of providing services to third parties, it would be prudent to have your own standard form service agreement. A service agreement sets out the terms upon which you engage your customers.

A service agreement would typically cover matters such as:

• Fees
• Scope of services
• Representations and warranties
• Indemnities
• Unlimited liability and limited liability scenarios
• Termination of the engagement
• Consequences of termination

When preparing your standard form service agreement, you should ensure that the terms in this standard form accord with the level of risk and potential liabilities that you are willing to assume under your engagements.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

What is a Franchise Agreement?

A franchise is a business model where one party provides another with a license to operate their business using the Franchisor’s branding and operating systems. The following article will explore some of the key points within a franchise agreement.

Understanding the relationship between the franchisor and franchisee 

Franchises are a commonly occurring business structure and are built upon forming a mutually beneficial business agreement between ‘Franchisor’ and ‘Franchisee’.

•  The Franchisor obtains revenue from the Franchisee as business operations proceed. The franchise arrangement may facilitate a Franchisor’s market penetration efforts in new territories
• The Franchisee may obtain sales revenue from customers through the operation of the franchised outlet

Franchisor and Franchisee obligations

A franchise agreement would typically dictate a set of obligations with respect to both the Franchisor and the Franchisee.

Depending on the complexity of the franchise arrangement and the Franchisor’s business model, the obligations of both parties could potentially be wide-ranging, and it is crucial for both parties to scrutinise their respective obligations.

Franchisor’s obligations 

• to provide the Franchisee with a licence to operate its business using its branding and operating systems
• to provide the Franchisee’s staff with training in relation to its operating systems and business model
• to provide the Franchisee with consultations and advice
• to provide the Franchisee with updates and modifications regarding its operating systems

Franchisee’s obligations 

• to comply with the Franchisor’s operating manual and standards
• to take all the steps necessary in ensuring the Franchisor’s intellectual property (IP) is not exposed to third-party infringements
• to obtain supplies strictly from suppliers designated by the Franchisor
• to refrain from operating any other businesses at the franchised premises

 A breach of any of these obligations may potentially result in the termination of the franchise agreement.

Marketing in franchising 

Apart from general obligations with respect to the operation of the business, a Franchisee may also be required to undertake certain marketing obligations, in order to advance the Franchisor’s market penetration efforts.

Marketing obligations within a franchise environment

• to set aside a fixed amount of money for marketing efforts in the region
• to market the business through channels specified by the Franchisor (e.g. internet, newspaper etc)
• to use marketing material prescribed by the Franchisor
• to obtain translated versions of the Franchisor’s marketing material for use in the relevant jurisdiction

Intellectual Property Rights (“IPR”) in franchise environments 

Intellectual Property (IP) is generally defined to mean “creations of the mind” – these include inventions, literary and artistic works, and exclusive symbols, names or images used in commerce.

A Franchisor’s business model, operating systems and branding are likely to be extremely IP-intensive and the Franchisor is therefore likely to seek rigorous protection for their IP in order to maintain a competitive advantage over its rivals and preserve the value in its franchise.

The Franchisor may also seek to obtain confidentiality agreements to be reviewed and signed by both the Franchisee and all employees working under the Franchisor’s business name.

Things to look out for in IP provisions within a franchise agreement

• Who owns the rights with regard to improvements or modifications made to the Franchisor’s IP?
• What steps must the Franchisee undertake (if any) where it suspects that there has been an infringement of the Franchisor’s IP rights?
• Is the Franchisee required to assist the Franchisor in making any registrations with respect to the Franchisor’s IP in the relevant jurisdiction?
• What steps is the Franchisee required to undertake in the event that it is required to register the IP on the Franchisor’s behalf in the relevant jurisdiction?

Audit

A Franchisor may seek extensive auditing rights, in order to ensure that standards are upheld and that its branding is not tarnished. Matters to pay attention to with respect to audit provisions include:

• What is the Franchisor allowed to audit?
• How often is the Franchisor allowed to exercise such auditing rights?
• What are the consequences of the Franchisee failing an audit?
• Who bears the cost of audits?

Franchise liability

There are three general categories of liability provisions, namely “no liability” clauses, “limited liability’ clauses and “unlimited liability” clauses. These clauses are commonly found in franchise agreements.

As their respective names suggest, “no liability” clauses set out the scenarios where a party has no liability under the agreement, “limited liability” clauses set out limits on a party’s contractual liability, and “unlimited liability” clauses set out scenarios where a party’s contractual liability is unlimited.

“No liability” scenarios would typically cover loss scenarios that are unforeseeable and/or remote in nature (e.g. various forms of indirect loss, such as loss of profit).

“Unlimited liability” scenarios would cover scenarios where a party’s contractual liability ought to be unlimited. These typically relate to losses arising from conduct that is extremely egregious such as gross negligence or willful misconduct.

The limits set out in “limited liability” clauses could take reference from various values such as the purchase price of the goods and/or services, the amount spent on goods and/or services over the number of quarters, etc.

Failure to be aware of these terms could result in potential liabilities that could cripple a business, or the failure to obtain recourse for egregious conduct by the counterparty.

Negotiating an agreement

When it comes to signing a contract as a Franchisee, it’s likely the franchise will be utilizing contract templates making the franchise agreement non-negotiable.

Prospective Franchisees should always ask about contract negotiation and seek as much clarification as needed, with the help of a legal professional.

When it comes to franchising agreements, it can seem overwhelming at first as they can be extremely complex agreements. However, the franchise model is well understood by seasoned legal advisors. 

What next?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Accessing Effective Legal Support

Startup companies have taken over the world of commerce as young and fresh minds continue to innovate and develop their ideas. The goal is to get to market as quickly as possible, but there are certain steps in developing a business that cannot be overlooked. Seeking out and accessing effective legal support is a critical step in ensuring a start-up has laid a solid legal foundation, and could be the difference between its success and failure.

In this article, we take a look at the role a lawyer plays in helping a Startup business become successful.   

The power of a good lawyer

 Professional and efficient legal support helps to ensure that business owners are equipped to navigate the intricate web of rules, laws, policies and regulations when entering into the market. Good legal support also ensures that a Startup's rights and finances are adequately protected.

 Startups can gain access to good legal support by hiring reputable lawyers from experienced and well-regarded firms. In determining how professional a firm or lawyer is, business owners should consider whether:

● The firm employs lawyers with a wide range of expertise.

● The firm has a solid reputation backed up by references

● Previous clients have provided endorsements for their services

 It is important to note that while individual lawyers may not have expertise within every area of practice, they may be able to delegate work to other subject matter experts within the firm. Though there is often temptation to cut legal spend and employ the cheapest lawyer around, bear in mind that a price can never be placed on sound legal advice.

Type of company

During the early stages of developing a Startup, a lawyer is needed to help in determining the best structure for your business. Sole proprietorship, LLC, PLC or Corporation – professional lawyers will help you decide on which structure not only suits your business goals, but best protects your personal interests and assets. A lawyer is also skilled in providing advice on the necessary legal requirements for registering your newly formed company.

Taxes  

Tax compliance is a crucial aspect of any Startup business. A lawyer is able to guide and assist in setting the business up with the necessary processes for complying with taxation laws.  Do not forget that a good accountant is similarly a valuable resource.

Identifying Risks

A Startup founder may be well-versed in business concepts and goals, but there are certain risks involved within any business model. A skilled and experienced lawyer is able to pinpoint potential risks for the business and aid in implementing the necessary strategies to avoid them. They will analyse the business structure and the general risks associated within a particular industry, and identify the most effective preventative measures to manage business risks.

Licensing and Registration

Obtaining licensing, registration and authorisation to operate as a business entity can be tricky and overwhelming. A lawyer will ensure that all the necessary documents are obtained and submitted, as well as identify any red-tape associated with licensing and registration of a Startup.   

Intellectual Property (IP)

IP is a sought-after commodity, most often found within the business concepts of a Startup business. By consulting with a lawyer, Startup founders are able to gauge the best method of registering and/or licensing their IP, ensuring their assets are safeguarded against fraud or theft.  

Investments

Securing funding for a Startup business is one of the first and most pertinent goals on a founder’s agenda. Seeking legal advice for this step can be helpful, since a lawyer is able to advise on the most appropriate methods of investment and fundraising for the business and its, keeping in mind its financial goals and the company structure.  

Contracts

Contracts are necessary within any Startup business. Whether concerning investment contracts, founder’s agreements or goods and services contracts, it is imperative to seek legal counsel when drafting these legally binding documents before the start-up enters into agreements with any associated parties. Contracts exist to clearly state the terms and conditions of a business agreement, and to protect the business against any potential lawsuits and financial losses.

Website and data privacy

Most businesses make use of websites and social pages to operate and market their Startup. An online presence presents its own set of challenges, including risk of data loss and theft. A lawyer will assist in drafting the necessary documents to help support your business in its online presence by developing specified terms and conditions for website use, personal data and requirements for employees.

Shareholding  

A lawyer will aid in drafting and reviewing the terms and conditions associated with shareholding within the business.

What next?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Minority Shareholder Protection

Minority shareholders are often presented with the challenge of establishing their rights within a company structure and ensuring that their opinions are heard.  A minority shareholder (someone who owns less than half of a company’s shares) should always ensure that the Shareholders’ Agreement preserves and protects their rights. The following article will take a look at some of the ways minority shareholders can guarantee the safeguarding of their company interests.

In the business world, minority shareholders could be seen as having a disadvantage over majority shareholders, since they hold less voting power. They are vulnerable to oppression by majority shareholders and generally do not have a decisive say in corporate decisions.

This means that minority shareholders have less influence to ensure that decisions are made in their favour and face the risk of majority shareholders advancing their own interests. That is why legal protections and remedies have been set in place to protect minority shareholders against unfair and unwarranted business practices.

Shareholders Agreement Protection

The Shareholders Agreement document is perhaps the best form of legally-binding protection for the minority shareholder. By incorporating specific contractual requirements in the Shareholders Agreement document, the minority shareholder is able to ensure the protection of the interests beyond what is provided by statute and law.

The Shareholders Agreement document should be thoroughly analysed before being signed by the minority shareholder, who, along with a legal professional, must ensure that the document covers key elements such as the following:

-   A clause allowing the minority shareholder to participate in company management by way of board representation

-   being involved in major decision-making processes

-   veto rights

-   protection against the inappropriate allocation of company profits

-   protection against the minority shareholder’s shares being unduly diluted

-   Access to information regarding company affairs through a right of inspection

Protection of Company Interests

Typically, the minority shareholder’s interests are closely associated with the interests of the company as a whole. Therefore, the minority shareholder is advised to put certain actions into play to protect the company, and to protect against any potential abuse of power from majority shareholders by ensuring that the company’s right of claim is not held hostage under majority voting rights.

To ensure fair company practice, minority shareholders can take the following steps:

-   Keep a close eye on the proper implementation of company insurance policies

-   Ensure that the company makes use of professional, thorough and regular bookkeeping and record-keeping practices

-   Be certain that all company business is conducted according to applicable laws, rules and regulations

-   Make sure that all the correct documentation, including contracts and confidentiality agreements, are up-to-date and signed by all the necessary parties

Weighted Voting Rights  

One of the most common and straightforward ways in which minority shareholders are able to employ protection of their rights and interests, is by implementing weighted voting rights on certain matters. This process will allow the minority vote to occupy more weight than the actual percentage of shares owned. Weighted Voting Rights will ensure that certain decisions taken by a minority shareholder cannot necessarily be removed or outvoted by a majority shareholder.  

Right of Inspection

As mentioned before, one of the crucial points to be considered within a Shareholders’ Agreement is the minority shareholder’s right to company information. Because minority shareholder rights to accessing company affairs are limited under common law, it is advised for the shareholder to obtain a Right of Inspection. This will allow the minority shareholder to inspect and review the company’s accounting documents, along with other critical company documents (such as board meeting minutes) otherwise excluded from their authority.

Representation at Board and Shareholder Levels

Minority shareholders should take special interest in ensuring representation at board and shareholder meetings. The minority shareholder has the ability to request that legal documents be drawn up to require their presence or representation at such meetings, in order for a decision to be valid. Additionally, the minority shareholder can request observer rights whereby they are permitted to appoint an observer to attend board and shareholder meetings, though they are not permitted to comment or participate in a vote.  

Choose Wisely

While the abovementioned methods are a select few techniques for protecting the rights of minority shareholders, it should be taken into consideration that every scenario is different. Based on the unique and specific needs and business structure, minority shareholders should always seek legal counsel to make the best decisions. All remedies are not suited to all problems, and can in-turn lead to more problems such as legal costs and a damaged reputation.  

In Conclusion

Shareholders’ disputes can be particularly damaging for a company that has just taken off. Minority shareholders have rights that must be clearly set out in the company’s constitution, general law and within the shareholders’ agreement.

Detailing shareholders’ rights and obligations in a well-drafted shareholders’ agreement is essential for limiting potential disputes and setting out expectations from the outset. By defining the ‘rules of the road’, everyone is certain about how important corporate decisions are made and how they affect the company.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Goods are needed for the optimal operation of any business and the supply of goods fuels commercial activity. A Supply of Goods contract exists to protect the rights of both supplier and client, and clearly states the terms of engagement. In this way, the client knows exactly what to expect upon delivery of goods and the supplier is aware of their responsibilities. A well-drafted Supply of Goods Contract should form part of every businesses’ contracting infrastructure. In this article, we examine the top 10 points to understand within a Supply of Goods Agreement. 

What to look for in a Supply of Goods Contract?

Goods specifications

Each party needs to be clear about the scope and nature of the goods being supplied and received, which the contract should highlight with sufficient clarity and precision. The phrasing and terminology used in the specifications should never leave room for any alternative interpretation. 

Details that ought to be covered include: 

• Quantity of goods supplied
• Specifications of the goods supplied
• Name and nature of goods
• Payment and delivery 

When contracting in the position of a supplier, it would be wise to examine the scope of goods, and to remove phrases such as “and all other items necessary” or “etc”. These phrases introduce the risk of scope creep (i.e. an undue expansion of the scope of goods that need to be supplied) and a supplier may find themselves short-changed with the inclusion of these phrases. 

Liability

Liability provisions may be split into 3 general categories, namely ‘’no liability clauses'', “limited liability’' clauses and “unlimited liability” clauses:

• “No liability” clauses include terms where a party has no liability under the agreement
• “Limited liability” clauses set out specific limitations on a party’s contractual liability
• “Unlimited liability” clauses set out terms where a party’s contractual liability is unlimited

It is important to scrutinise these liability provisions. Failure to do so could either mean potentially extreme liabilities that could cripple your business, or a lack of recourse towards counterparties who engage in egregious behaviour. 

A contract lawyer can assist you in drafting a limited liability clause as a goods supplier, which will exclude any liability on the supplier’s part where there is damage or loss caused by the client or events out of the supplier’s control. 

If, as a supplier, you receive a supply of goods from the client, any indemnities (protection against loss or financial burden) should be deleted from the contract. Should it not be possible to delete indemnities, consult with a contract lawyer to help you limit the reach of the indemnity clause. 

Representations and warranties (“R/Ws”)

R/Ws are a form of performance assurance. Where a party believes that a contractual obligation is particularly important to the supply engagement, it may wish to negotiate for such obligation to be elevated to an R/W. The effect of elevating an obligation to an R/W is that a breach of such an obligation would entitle the innocent party to a broader scope of solutions. 

A breach of a representation (“R”) would generally entitle the innocent party to rescind the contract (i.e. terminate the contract and restore parties to their respective positions prior to their entry into the contract). A breach of a warranty (“W”) would entitle the innocent party to monetary damages.

As a supplier, it is important to scrutinise the range of R/Ws in the contract to verify that it is not unduly wide. As a customer, one should ensure that important obligations are captured within the range of R/Ws – these may include an R/W that the goods are in accordance with the specifications.

Title/Risk

‘’Title’' typically refers to the legal owner of goods. Should the title be transferred from a supplier to the client, the client becomes the new owner and the supplier loses all rights to the goods. The ‘title to goods’ transfer will only be complete and legally binding once total payment has been made for the goods. A warranty from the supplier should be included stating that they possess legal title to the goods and that said goods will remain free of any hindrances and third-party rights.  

Risk makes reference to whoever is responsible for looking after the goods. If goods risk is transferred over to you (the client), it is within your responsibility to ensure that no damage is incurred and the goods are correctly stored and transported. Once the goods are physically in your possession, it is accepted that risk has been transferred to the client, regardless of whether it has been personally collected or if it has been delivered. Insurance is an essential in the case of risk being transferred from supplier to client. 

Indemnities

Indemnity is an obligation by a party (the “Indemnifying Party”) to compensate another party (the “Indemnified Party”) for losses that the Indemnified Party incurs as a result of the occurrence of an event (the “Indemnified Event”).

A party may wish to consider obtaining an indemnity for a particular event if it believes that such an event is out of its control and the risk of potential losses arising from such an event are very high. As an Indemnifying Party (usually a supplier), it would be prudent to examine indemnity clauses closely to ascertain the following:

• Is the event being covered by indemnity within your control?
• Are the risk factors for potential losses very high?
• Does the obligation to indemnify cover only the counterparty or its affiliates as well?
• Is the indemnity clause subject to any of the liability provisions stated above? 

Once these factors have been closely examined and determined, speak to your lawyer about including an indemnity clause for high risk scenarios. 

Intellectual Property Rights (“IPR”)

Intellectual Property (“IP”) is generally defined to mean “creations of the mind” – these include inventions, literary and artistic works, and symbols/names/images used in commerce. IP clauses become particularly important where the goods in question are IP-intensive (i.e. they relate to a novel idea, a distinctive mark, a trade secret, etc). This means that a supplier is providing a client with their Intellectual Property as ‘goods’, which should be sufficiently covered within the Supply Contract. 

Termination

Termination provisions set out express grounds upon which a party can terminate the contract, and with that, the further provision of the goods. Since termination is rather extreme in nature, provisions with respect to termination would need to be scrutinised. Make sure you keep these questions to keep in mind when reviewing termination clauses:

• What are the grounds for termination?
• Do parties have a right to terminate for convenience (i.e. terminate for no specific reason)?
• Do parties have a right to terminate for cause (i.e. upon the occurrence of specific grounds)? If so, what are these grounds?
• What are your obligations upon the termination of the contract?
• What is the notice period for termination?

8. Confidentiality

It is not uncommon for businesses to disclose sensitive information to each other over the course of a supply engagement. Such disclosures may be required for a host of reasons, including:

• The specifications required for certain goods may provide indications of a businesses’ trade secrets
• The supply engagement itself ought to be confidential and should be kept out of the public eye
• The supply relates to the pending release of a new product that should not be disclosed to the public yet

Under these circumstances, it is crucial to ensure that such sensitive information is kept confidential, and it is certainly not uncommon for a Supply Agreement to contain confidentiality clauses.

When examining confidentiality clauses, it would be prudent to examine matters such as:

• Scope of confidential information
• Consequences of confidentiality breach
• Representations and warranties with respect to the confidential information

9. Dispute resolution

Differences between parties may arise. Under such circumstances, it is crucial to clearly define the discourse for supplier-client disputes. Ideally, disputes should be resolved as amicably, cheaply and quickly as possible. Doing so will ensure that parties continue collaborating on good terms, without experiencing a significant drain on time and money.

10. Governing law

Last but not least, it is crucial to pay attention to the governing law of the Supply Agreement. The governing law dictates which jurisdiction’s laws will be used to interpret the terms of the contract. As the laws of each jurisdiction will differ, it is key to ensure that you choose a governing law that lends enforceability to the rights and obligations that you had bargained for.

There must be absolute clarity and certainty concerning the scope of the agreement, which needs to be set out in unambiguous terms. We hope that this article has been helpful to you as a start-up trying to make headway in the exciting, yet uncertain, world of commerce.

What next? 

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

The employment agreement outlines the rules, rights and responsibilities for both the employer and the employee. In this article, we’ll be going through the legal aspects of what to include in an employment agreement and why, as well as what to look for before creating one.

What is in an employment agreement?

An employment agreement is crucial as it concretises the obligations that you require your employees to fulfil, as well as provides some degree of certainty with respect to your labour force. An employment agreement would typically cover matters such as:

• Remuneration
• Leave
• Working hours
• Responsibilities 
• Benefits 
• Non-Compete obligations
• Performance reviews
• Termination notice period

Understanding post-employment restrictions

One of the issues that would arise when hiring someone is if they have a post-employment restriction. Whether you’re hiring an employee with post-employment restrictions, or setting up an employee agreement to have post-employment restrictions, these are the most common items to include:

Non-Compete obligations 

These expressly restrict the employee from competing with their former employer. Such restrictions typically apply for a specific time (e.g. “1 year after leaving the company) and in a specific area (e.g. “within the markets in which the employer operates).

Non-Solicitation obligations 

These expressly restrict the employee from trying to convince (or in slightly more legalistic terminology, solicit) the former employer’s other employees, clients or suppliers to cease dealing with the former client.

Confidentiality obligations 

These restrict the employee from disclosing information that they obtain in the course of their employment with the former employer.

Startups can be so eager to hire new talent, that they overlook the pitfalls that may arise from hiring employees, who are subject to such post-employment restrictions. The risk here is that by hiring someone subject to such restrictions your company may end up being found liable for procuring a breach of such restrictions – even if your company has done so inadvertently.

In an ideal world, you would want proof (e.g. a copy of their old employment agreement) that your prospective employee is not subject to such restrictions. In a more practical/realistic world, your template employment agreements should include express representations from him/her that he/she is not subject to such post-employment restrictions.

Benefits of Employment Contracts

When drafted well, an employment contract can provide a variety of benefits to a company and its employees, including:

● Recognising the criticality of human assets

● Making it easier to attract top talent

● Creating positive first impressions

● Explaining roles and responsibilities

● Ensuring the employer gets the benefit of employee-generated IPR

● Enabling performance management of employees

● Delivering performance incentives

● Mitigating risk of employee claims

● Smoothing out bad hire departures

● Protecting employers from reputational risk.

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Business activities typically involve the supply of goods and/or services in return for payment. The flow of goods, services and payments forms the backbone of the world of commerce.

Invoices form a crucial element of the process that enables the flow of goods, services and money. An invoice is a commercial document that sets out the goods and/or services that a supplier provides to a customer, as well as the agreed prices for these goods and/or services.

The Importance of Invoices

In addition to documenting the terms of sale, it is typical for the issuance or receipt of invoices to trigger payment obligations as well. 

Functions of Invoices

In addition to being a legally binding document that shows consent to payment conditions and agreed upon pricings, an invoice does come with additional benefit and functions.

Maintaining records

Invoices act as a way to maintain records of sales, what was bought and when and by whom. 

Payment tracking

When it comes to the accounting aspect of a business, invoices are invaluable in order to keep track of what is owed to them. 

Legal protection

Invoices serve to protect both parties in terms of a set price. 

Tax filing 

By having recorded sale invoices, this helps the company to report it’s income and pay the correct amount of taxes. 

What Goes Into An Invoice? 

Given the importance of invoices in commercial activity, it is worth examining what should go into an invoice, to ensure that your commercial activities go according to plan. In this article, we examine 5 key items that should go into an invoice.

Item 1: Agreed upon deliverables and price

The key elements of a commercial transaction are the goods and/or services being supplied, as well as their agreed price. By way of best practice, the following information ought to be reflected:

● Where services are concerned, a precise specification of the services being supplied, as well as the time frame for which these services are supplied.

● Where goods are supplied, the specifications of the goods and their delivery charges (if relevant).

● Quantities of goods and services supplied.

● Total price

It is crucial to document such information in an invoice, as such documentation will provide an evidentiary record of parties’ agreement with respect to the commercial transaction, in the event of a dispute.

Item 2: Applicable Taxes

Various taxes may be levied on the import and/or consumption of goods and services. These may include value-added taxes (including goods and service tax), as well as certain excise duties.

While the supplier is often under an obligation to remit these taxes to the regulatory authorities, consumers are typically required to bear at least part of the costs of such taxes. These costs are typically passed from the supplier to the consumer through sums payable pursuant to the supply of such goods and/or services.

The sums payable pursuant to such taxes ought to be reflected in the invoice. It is also prudent to reflect how such sums payable are computed – they are computed usually as a percentage of the purchase price of the goods/services.

Item 3: Payment Terms

The right to receive payment remains hollow if there are no terms of payment. Terms of payment set out the rights and obligations of the supplier and customer with respect to payment, including the payment procedures that the customer is required to follow.

While payment terms are typically set out in the underlying sales contract between the supplier and the customer, it would be helpful to set out certain key payment terms in the invoice as well, for the customer’s ease of reference. These key payment terms may include:

● Payment deadline

● Currency for payment

● Bank account to remit payments to

Item 4: Dispute Resolution Procedure

The following might not appear in the invoice itself but it is important that the invoice be issued under a contract that deals with payment dispute scenarios. 

Sadly, there may be times where parties may dispute the information set out in an invoice. A customer may, for instance, raise a dispute on the price set out in an invoice on the basis that it was not what he/she had agreed to, or may raise a dispute with respect to the goods reflected on the basis that they were not what he/she had ordered.

Such invoice disputes are certainly not uncommon, given that they often arise from errors that human beings may commit on a regular basis. These errors may include administrative oversights and typographical errors.

Given the fairly common nature of invoice disputes, it is important for parties to set out an invoice dispute resolution mechanism that is both time and cost-efficient.

While a comprehensive set of terms with respect to the invoice dispute resolution mechanism is likely to be set out in the underlying sales contract between the supplier and the customer, it would be helpful to set out certain key steps in the invoice as well. These may include:

● deadline for customer to inform the supplier that it intends to dispute an invoice

● contact details of personnel to reach out to, in the event that the customer wishes to raise a dispute

● details that the customer is required to set out when raising a dispute

Item 5: Invoice Serial Number

A business is likely to undertake many commercial transactions over the course of its operations. It is important for each commercial transaction to be identified as quickly and as easily as possible to ensure the efficiency of operations.

The most common method that businesses adopt to identify transactions is to ascribe each specific transaction with its own unique serial number. This serial number ought to be set out in the invoice, for both the supplier’s and the customer’s reference, for a wide range of purposes, including:

● Facilitating the raising and resolution of invoice disputes

● Tracking whether payments have been received

● Customers claiming any benefits (e.g. cashback or future discounts)

We hope that this article has been helpful to you as a Startup trying to make headway in the complex world of commerce.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Personnel is crucial to the smooth operation of a business. When engaging personnel, it is worth considering if they are employees or independent contractors. This distinction is crucial as employees tend to have more rights than contractors, whose rights are generally entirely defined by a services agreement.

For example, an employer may under law be required to pay pension contributions to its employees, but not to independent contractors.

Obligations to Employees

● Pay pensions

● Provide annual leave and medical leave

● Provide parental leave benefits

Business owners who fail to consider this issue may find themselves facing unexpected employment-related claims, which could place a strain on the Startup’s financial and manpower resources.

Key Differences Between Employees and Contractors

Consultants are often treated as employees, but there are some major differences to the nature of their work as well as the terms and conditions of their engagement with the company. If in doubt as to whether your personnel are considered employees or independent contractors, it may be worth consulting an employment lawyer.  Let’s go through the key differences between a consultant and employee.

Location

A contractor can work either at home, their own office or at the company's office. An employee generally works from the company’s office. Note, with COVID - many employees have found themselves working from home. Whether this trend continues remains to be seen. 

Responsibilities

Where a consultant is paid to share their area of expertise and knowledge with the company, an employee is hired to fill their workforce. 

Benefits

Contractors do not receive any benefits from the company. Employees may receive employee benefits such as medical aid, overtime and pension fund contributions. 

Tax

Employees of a company will receive their net salary, as the company will withhold income tax. A contractor is given their full amount and is held responsible for their own income tax. 

Work hours

A contractor can have either fixed or flexi time options, whereas an employee generally gas a set fixed amount of hours per day.

Purpose  

Typically, a contractor is hired for a fixed term project, whereas employees are hired to work regardless of what projects are currently underway. 

Independent contractor” or “employee” relationship 

Under general common law, the question of whether an “independent contractor” or “employee” relationship exists is a fact-sensitive enquiry. Factors that may be relevant include:

● The degree of control exercised by the company over the individual.

● Whether the work of an individual is done as an integral part of the business of the alleged employer.

● Whether there is any representation of the individual as part of the company’s business (e.g. name cards, uniforms, etc.).

Under general common law, the question of whether an “independent contractor” or “employee” relationship exists requires a fact-sensitive determination. Defining the various roles and responsibilities of workers in your organisation is imperative to know exactly what added responsibilities you have as an employer. Different contracts are required for full-time employees vs that of a contractor. 

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Contracts are used as a legally binding tool when securing important business relationships. This includes actions such as closing a deal, building a new professional relationship or expanding the reach of an existing partnership. Other than acting as a means of formalising business interactions, a well-drafted contract has the power to help a business in many other ways. The following article takes a look at what makes an effective contract and why the drafting of contracts should always be considered when entering a new business venture.

What is a contract? 

A contract is an obligatory legal agreement used to document the business terms and conditions as agreed upon between two or more parties. Although a contract does not have to be in writing to be considered legally binding, it is considered the ‘safer’ option to have a paper trail. Once a contract has been concluded, it is expected that all areas of the agreement will be abided by and fulfilled by the parties. The document will clearly state the consequences of any contract contravention. 

 It is possible for a contract to be amended if and when necessary, only if the amendments have been agreed upon by all parties. The contract usually exists for a specified period of time (six or twelve months, for example), and can be reviewed and renewed should the co-signers so wish. 

For a contract to be binding you need (a) an offer capable of acceptance (b) acceptance of that offer and (c) the giving of come “consideration” ( something of value) by the offeree back to the offeror. 

The purpose of a contract 

Contracts form the backbone of a company’s operations, set out the rights and obligations assigned to each contracting party, and lend enforceability to these rights and obligations. A contract that sets out the rights and obligations of parties clearly leaves no room for ambiguity and reduces the risk of disputes.

While contracts are usually signed within a professional business context, individual entities also benefit from the legal protection a contract has to offer. Whether selling a car, property or for the supply of services, a written contract is always a great option within any commercial relationship. 

Common Types of Contracts 

The following is a list of contracts that start-ups are likely to come across:

Employment Contracts 

Governs the relationship between employer and employee.

Confidentiality Agreements 

Governs the transfer of confidential information between two entities.

Commercial Leases

Governs the relationship between lessee and landlord.

Goods & Services  Agreements 

Governs the relationship between customer and supplier of goods / services 

Distribution Agreements 

Governs the relationship between a manufacturer or vendor and a distributor (a start-up is often likely to be a distributor)

Termination contract

Governs the terms upon which the contract may be immediately terminated 

Why are contracts important? 

Consider the above list of common types of contracts. All of these agreements have the potential to end up as a liability for all parties involved. For this reason, signing a contract is an imperative step when entering into any agreement, business or personal. Here are a few more reasons as to why a contract is so important:

Promises are legally enforceable

This means that any promises made within the contractual document can be legally enforced in a court of law. The very intention of a contract is to make all enclosed terms legally binding and therefore legally enforceable. It is important for all parties to understand this before signing the contract. A contract will include clauses aimed at protecting all parties from any liability if a co-signer should violate any of the contract terms. 

Ensures Payment 

Another very important feature of a contract is to clearly outline the payment process. This includes specific information, such as:

-          The amount due to be paid

-          How often payment must be made

-          Payment method (cash, card, wire transfer)

-          Terms and conditions applicable to late payments

 This section of a contract acts as a precautionary measure against fraudsters who have no intention of making payment. 

Guarantees Confidentiality 

For many businesses, confidentiality is key. Too many business-owners have failed to secure a signed contract that legally requires second or third-parties to keep sensitive information confidential. A contract is the best way to ensure any and all trade secrets are kept within the confines of the business structure. Whether by way of non-disclosure agreements or confidentiality clauses, co-signers will be legally and contractually obligated to keep the information private.  

Formalise Relationships 

Since the first agreement between two or more parties will usually be verbal, a contract is merely the formalisation of such an agreement. The finer details will be discussed and laid out for all parties to agree upon before becoming finalised through signing. For this mutually beneficial relationship, a contract will act as a draft for all business operations, obligations, roles, responsibilities, rules and regulations. Fast-growing businesses must understand that securing a legal footing with all new partners must remain top priority.

To be sure that contracts are working well for you and your business, always refer to some of the benefits a contract should be providing for your organisation. 

What Next?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Nurturing a successful business can be tricky and requires a great deal of effort. Setting up all the necessary documents to ensure your business is legally protected is a critical phase in any start-up business. If your business operates within the service industry, you need to know about the Sale of Goods and Supply of Services Agreements. 

In this article, we’ll be covering the legalities around these documents and which aspects you should pay extra attention to. 

What is a Sale of Goods and Supply of Services Agreement? 

The Sale of Goods and Supply of Services document serves as a legal contract used to outline the specifications of a transaction between a buyer and seller. Commonly referred to as a sales contract, the basic layout of the agreement involves a buyer and a seller completing a transaction of exchanging goods or services for money.

A Sale of Goods or Supply of Services Agreement can be used to facilitate the sale of tangible goods such as machinery or vehicles, or services rendered such as consultation or installation. It is important to note, however, that although they have similarities, there are notable differences between Sale of Goods and Sale of Services Agreements. 

While both agreements place legal obligations on the parties involved, there are different 

• Laws governing the sale of goods and the sale of services 
• Rules concerning incomplete performance of services and 
• Measures to be implemented upon contractual violation 

Differentiating between Sale of Goods and Supply of Services 

To recap, goods are tangible items or property which can be physically seen, handled and transported. A service refers to an intangible action, such as the response to a query, a tutoring session, or a consultation.

The Supply of Services Agreement is a contractual document shared by two (or more) parties, who agree that a service will be rendered in exchange for monetary compensation. The Agreement will include specifications regarding the circumstances under which the service must be rendered, and to what standard.

A Sale of Goods Agreement refers to the contractual agreement between two (or more) parties who have agreed to the terms and specifications of the sale of a particular good/s. All specifications and terms are specified within the document, including terms regarding failure to deliver or other violations. We will take a closer look at this later.  

When Do You Need a Sale of Goods or Supply of Services Agreement? 

Any transaction involving the sale of goods or supply of services that requires more than a simple transfer of ownership or verbal agreement should be backed up by a Sale of Goods or Supply of Services Agreement. The document acts as a safeguard against any unprofessional or criminal behaviour conducted by the buyer or seller, and also protects against unintentionally accepting liability for events out of your control.

Terms, Conditions, Obligations and Deliverables 

Similar to any other agreement, Sale of Goods and Supply of Services Agreements feature four key requirements: 

Terms 

Terms refer to the legal specifications within the agreement. This includes regularly occurring terms such as liability, assignment and agreement. A contract term can refer to any requirement within the agreement. Should an unnamed term be violated, the party who incurred damage may terminate the contract depending on the circumstances of the breach and whether the contractual agreement is further threatened by the breach. 

Conditions 

Certain terms within the Sale of Goods or Supply of Services document are so critical to the agreement that, should a party act in contravention of the term, the contract may no longer continue. These terms are referred to as conditions, because the contract between two parties is conditional upon these functions (conditions) being fulfilled. Violation of a condition would entitle the opposite party to terminate the agreement. 

Obligations

Contractual obligations refer to outlined actions that a party is obligated to do, or the actions a party may not do.Two examples of obligations include such terms: ‘the obligation to deliver a service to a high and acceptable standard’ or ‘deliver goods in an excellent condition within 48 hours’. Obligations for one party serve as rights for the other and will be amended as such. 

Deliverables  

Refers to the exact product or service to be delivered as stated in the agreement. 

Terms of Agreement

Although no sales agreement typically looks the same and will include custom sections, listed below are some examples of the clauses a Sale of Goods or Supply of Services Agreement should include: 

Buyer and Seller 

A valid Sale of Goods or Sale of Services Agreement includes the necessary particulars of both buyer and seller as the contract will refer to each party as such. This may include names, identification numbers and contact numbers. 

Date and location of Agreement 

A clearly stated date of agreement must be included in the Sale of Goods or Sale of Services Agreement, along with an indication as to where the document had been signed by both parties and witnesses. 

Description of Goods or Services 

A detailed description of the goods being supplied or services being rendered must be included in the agreement. This may include a physical description and expected quantity of the goods or an agreed upon schedule for services being rendered. 

Payment Amount, Date and Method 

The purchase price agreed upon by both parties must be clearly stated within the contract. Once the document has been signed by both parties, this price will remain fixed for the duration of the contract. The expected date of payment (for example, the last day of every month) must also be stipulated, along with the agreed upon method of payment (such as cash or wire transfer) and also any terms associated with late payments. 

Amendments

This section of the agreement details the procedure that both parties must abide by in order to make any changes to the existing agreement. Once an amendment has been made, both parties are required to re-sign the agreement.    

Liability 

The liability element confirms which party will take responsibility for any loss or damage for the duration of the contract. The buyer and seller may transfer liability to one another at different times such as when the goods are being transported and once it has been received and the buyer confirmed receipt of the undamaged goods. 

Do you Need a Lawyer for this Contract?

While it is possible to get hold of basic Sale of Goods or Supply of Services contracts online, it is always best to obtain professional legal advice when drafting any legally binding documents. A standard agreement could overlook critical aspects associated with your particular business arrangement and put you at risk of liability. 

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Key Website Agreements

Personal data is generally defined widely to entail information that can be used to identify an individual. This means that personal data extends beyond the information that is traditionally perceived as “personal” (such as one’s name and height), and could even encompass information such as the IP address of one’s computer.

The collection and processing of personal data feature in the operation of many businesses, particularly where businesses operate websites. Even where a business does not rely heavily on personal data to generate revenue, it frequently collects and processes more personal data than it expects.

The proliferation of high profile data breaches in recent years has resulted in a stricter data privacy enforcement climate across the globe. It is thus becoming increasingly important for businesses to comply with data privacy laws. A failure to do so could result in hefty penalties, as well as a tarnished reputation.

In this article, we examine the measures that businesses can take to collect personal data safely on their websites.

Legal Notices for Websites

A website is instrumental for business. Given the ubiquity of the internet, operating a website provides businesses with access to individuals and markets never seen before in any other era of human history.

The proliferation of e-commerce has resulted in websites becoming increasingly multi-functional. Websites are not only used to convey information but can also be used to collect information and to operate various revenue-generating activities for a business.

A common issue that business owners face is whether to put up legal notices on their websites. A legal notice is a notice that sets out various rights and obligations of the business as well as the website visitor, with respect to the website. Put simply, it is important for business owners to put up such legal notices on their websites. Some of these may include the following.

Obtain consent with respect to personal data

Businesses often collect and process individuals’ personal data for the purposes of their operations. Yet, the data privacy enforcement climate is becoming increasingly strict amidst the emergence of high-profile data breaches.

Besides, data privacy regimes are becoming increasingly consistent as jurisdictions seek to adopt a coordinated approach towards data privacy enforcement. One concept holds true across data privacy regimes worldwide – the requirement for consent.

It is thus crucial for organisations to obtain clear and unequivocal consent from data subjects for the collection and/or processing of their personal data. Legal notices are crucial for ensuring that businesses comply with their data privacy obligations. Businesses commonly use legal notices on their websites to inform website visitors about the purposes of collecting and/or processing their personal data, as well as to procure the consent of website visitors for the collection and/or processing of their personal data for such purposes.

Disclaimers

Operating a website with an extremely wide reach means that there is potentially an extremely high number of visitors to the website.

While there are certainly positives to draw from high traffic volume, a high number of visitors could also expose businesses to potential liabilities to a large number of individuals and entities. If not kept in check, these potential liabilities could cause crippling losses to a business.

In this regard, businesses may use legal notices to set out various disclaimers of liability with respect to their website. These disclaimers may include disclaimers from liability with respect to:

● Any inaccurate information on the website

● Any opinions set out on the website

● The content of external web pages that have been linked from the website

Intellectual Property

Intellectual Property (“IP”) is generally defined to mean “creations of the mind” – these include inventions, literary and artistic works, and symbols/names/images used in commerce. The wide definition of IP means that, more often than not, at least some of your website content will constitute IP.

The IP contained in your website content could form a crucial part of your business, and having exclusive rights in such IP may be instrumental in helping you maintain a competitive advantage over your business rivals.

A business entity may use legal notices to communicate to website visitors the exclusive rights that it has in the IP on its website, the consequences of infringing on these exclusive rights, as well as the terms of use with respect to the IP on its website. Such terms may include:

● Restrictions on the copying of website content (e.g. allowed to copy only for personal and non-commercial use)

● Requirement for the consent of the business owner in the event that website visitors intend to reproduce such website content

● Restrictions on linking to the website

Conclusion

We hope the above article shed some light on the concept of website agreements. If you found this helpful, you might want to take a look at our Website terms checklist. Have a look at all the related products in the side scroll bar to see how GLS can help your Startup today.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. 

You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Data Protection Issues 

Personal data could prove crucial to the smooth operation of a business. Even where a business model does not rely heavily on personal data to generate revenue, a business often ends up collecting and processing more personal data than it expects. With that, comes an array of policies you need to adhere to. In this article, we’ll be exploring everything you need to know when it comes to complying with data protection policies for your website. 

Data Privacy

Given an increasingly strict data privacy enforcement climate across the globe, it is important for entrepreneurs to ensure that they comply with data privacy laws. A failure to do so could result in hefty fines for regulatory authorities, as well as a tarnished reputation in the market.

While data privacy laws may differ across jurisdictions, a general rule of thumb is that businesses must obtain a data subject’s consent before collecting, using and processing his/her personal data, and must implement proper safeguards to prevent any data breaches.

Comply with Data Privacy Obligations

Businesses often rely on personal data to facilitate smooth operations. However, the proliferation of various high-profile data breaches in recent years has given rise to an increasingly strict data privacy enforcement climate across the globe.

This means that it is becoming increasingly important for start-ups to comply with data privacy laws. A failure to do so could result in hefty fines for regulatory authorities, as well as a tarnished reputation in the market. Yet, start-ups often fail to appreciate the importance of complying with data privacy laws. 

Reasons for such a failure may include:

● An underestimation of the amount of personal data that the start-up actually collects and processes

● A failure to appreciate the gravity of the consequences of failing to comply with data privacy laws

Whatever the reasons, start-ups would need to pay attention to their data practices to ensure compliance with data privacy laws.

While data privacy laws may differ across jurisdictions, a general rule of thumb is that businesses must obtain a data subject’s consent before collecting, using and process his/her personal data, and must implement proper safeguards to prevent any data breaches.

Cookie Policies

Web cookies can prove useful for both the website operator and the website user. They allow website operators to track the activities of visitors to the website, in order to facilitate web operations. They also allow for website visitors to engage in web activities with more convenience – cookies for instance allow for passwords to be stored on commonly used sites for easy access, or for visitors to keep track of the items in their online shopping cart.

Yet, the usage of “cookies” also brings up various concerns from a legal and compliance perspective. An immediate concern that may spring to mind for website visitors is whether that privacy rights will be infringed through the use of “cookies”. Likewise, website operators may be concerned that their usage of “cookies” will result in an infringement of data protection laws.

Given the risks involved, it would be prudent for companies that operate websites for business activities to have a cookie policy.

Obtain consent with respect to personal data

The usage of cookies is likely to involve the collection and processing of personal data. This means that the laws and regulations surrounding the collection and processing of personal data apply to the usage of cookies.

Personal data is widely defined to encompass data that can be used to identify an individual. In this regard, there is a very wide range of data that can potentially fall within the definition of “personal data”.

Businesses often collect and process individuals’ personal data for the purposes of their operations. Yet, the data privacy enforcement climate is becoming increasingly strict amidst the emergence of high-profile data breaches.

Besides, data privacy regimes are becoming increasingly consistent as jurisdictions seek to adopt a coordinated approach towards data privacy enforcement. One concept holds true across data privacy regimes worldwide – the requirement for consent to collect and/or process personal data for specified purposes.

A cookie policy informs website visitors of the purposes of the usage of cookies, as well as how website visitors may disable cookies on their web browser.

Requirement for greater accountability to website visitors

Data privacy regimes around the world not only require companies to obtain consent from individuals with respect to their personal data but also to take measures to maintain accountability to individuals who provide such consent (“data subjects”).

Measures that companies may be required to take to maintain accountability include acceding to data subjects’ requests on information with respect to the status of their personal data and how their personal data has been used.

A cookies policy can facilitate such accountability efforts, through various means, such as:

● Providing website visitors with the contacts details of the person whom they are to reach out to, in the event they wish to make certain requests in relation to their personal data.

● Setting out the procedures for conveying data subjects’ requests.

Standalone cookie policy needed in some jurisdictions

In certain jurisdictions, companies are required to have a standalone cookies policy. In particular, the European Union has enacted laws that require websites to post a standalone cookie policy – separate from its privacy policy.

Given the cross-border nature of commerce, it would be prudent for companies to adhere to the high watermark of standards as far as data privacy compliance is concerned, in order to ensure smooth operations across as many jurisdictions as possible.

Harsh consequences of failure to comply with data privacy laws

It is getting increasingly important to comply with data privacy laws and regulations around the world. The proliferation of high-profile data breaches in recent years has resulted in a stricter data privacy enforcement climate across the globe. A failure to comply with data privacy law and regimes could result in hefty penalties, as well as a tarnished reputation. All these could result in huge losses that could potentially cripple your business.

Source of reference for your own personnel

While cookie policies may be public-facing, they may also serve as an important point of reference for your own personnel who operate your website. Cookie policies may serve as a reminder to your personnel on various cookie-related matters, such as to how cookies should be used.

Indeed, this is important as the weakest link in any company’s data compliance ecosystem is human error – after all, we all err from time to time and human error cannot be eliminated. Measures can, however, be taken to reduce human error, and a cookie policy is one such measure.

How to Collect Personal Data Safely 

Personal data is generally defined widely to entail information that can be used to identify an individual. This means that personal data extends beyond the information that is traditionally perceived as “personal” (such as one’s name and height), and could even encompass information such as the IP address of one’s computer.

It’s increasingly important for businesses to comply with data privacy laws. A failure to do so could result in hefty penalties, as well as a tarnished reputation.

Let’s examine the measures that businesses can take to collect personal data safely on their websites.

Obtain clear and unequivocal consent

Data privacy regimes across the globe are becoming increasingly consistent as jurisdictions seek to establish unified efforts to prevent data breaches. One concept holds true across data privacy regimes worldwide – the requirement for the concept.

Briefly, data privacy regimes around the world require organisations to obtain consent from a data subject before it collects that data subject’s personal data.

In this regard, it is crucial for organisations to obtain clear and unequivocal consent from data subjects for the collection of their personal data. Measures that organisations may take to ensure that consent is clear and unequivocal include:

● Setting out clearly on the website the proposed purposes for collecting the personal data of the data subject

● Setting out a notice requesting for consent in large font at a prominent area of the web page

● Not providing the individual with further access to the website unless the individual clicks “I consent”

It is also prudent for organisations to keep a record of all consents that they have received from their data subjects, for evidentiary purposes.

Use the data only for specified purposes

The exercise of obtaining consent is hollow if the boundaries of consent are not adhered to. Organisations need to ensure that they use the personal data that they collect only for the purposes that the data subjects have consented to.

Implement proper security measures

Another key measure that organisations should undertake is to implement proper security measures to prevent data breaches. Indeed, this is an obligation that organisations are required to undertake under the data privacy regimes of jurisdictions across the world.

Ultimately, the amount and level of safeguards that would need to be put in place would depend on a range of factors, including:

● The amount of personal data collected

● The level of sensitivity of the personal data involved

● The nature of the services that the organisation provides

● The location of the database where the personal data is stored

While it is ultimately a fact-sensitive enquiry, it is always wise to err on the side of caution, given the grave consequences that follow from data breaches. Given that the chief cause of data breaches is human error, measures should be focused on reducing the risk of human error.

Examples of security measures that organisations may wish to implement may include:

● Restricting access to the database to limited categories of personnel, on a “need to know” basis

● Password-protecting access to the database

● Requiring personnel to adhere closely to notification protocols in the event that they suspect or detect a data breach

● Keep a record of all personnel who access the database

Data transfer agreements

The transfer of personal data to third-party service providers may increase the risk of data breaches occurring. In this regard, it is key to enter into a well-drafted data transfer agreement with the third-party service provider.

Data subjects’ requests

Various jurisdictions (including jurisdictions that adopt the GDPR standards) require organisations to accede to various requests from data subjects in relation to their personal data. These requests may include:

● A request for the organisation to erase his/her personal data from the database

● A request for the organisation to provide an accurate account of how his/her personal data is being used

Accordingly, organisations should implement measures to ensure that they are able to respond to data subjects’ requests promptly. These may entail:

● Having personnel on standby at all times to look out for, and respond to, data subjects’ requests

● Keeping a proper log of how data subjects’ personal data is used

● Implementing a protocol for addressing data subjects’ requests

Other Terms of Use

Businesses may also use legal notices to convey other terms of use with respect to their website, which may be crucial for maintaining the integrity of the website, as well as its business operations.

These terms of use set out the rights and obligations of website visitors with respect to their access to the website, as well as the usage of website content. These terms of use may relate to matters such as:

● Obligation on the visitors not to introduce viruses onto the platform and/or hack into the platform;

● Obligation to indemnify the business for any losses that the business suffers as a result of breaches by the visitors of various provisions in the terms of use; and/or

● Restrictions on the types of content that visitors are permitted to post on the website.

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Website-related Risks

Almost every business has a website, which provides businesses with immense access to individuals and markets across the world. A website is nearly indispensable to the operations of a business. Yet, operating a website is not without its own legal risks as well. In fact, the risks that accrue to operating a website could well be more than what you would expect.

In this article, we examine the legal risks behind operating a website, and how these risks may be managed.

Data Transfer Agreement

Many businesses are heavily reliant on personal data to fuel their operations and revenue streams. For example, technology companies such as Facebook rely on personal data to generate advertisement revenue. Even where your business model is not personal data-intensive, you are likely to collect and process more personal data than you would expect.

It’s not uncommon to procure the services of third parties, for the purposes of storing and processing personal data. A data transfer agreement sets out the obligations of this third-party service provider and is crucial in ensuring that you do not fall foul of data privacy laws.

Personal Data Risks

Businesses often collect and process individuals’ personal data for the purposes of their operations, and businesses often use websites to collect personal data. Indeed, personal data may be crucial to the operations of a business.

Yet, the emergence of high-profile data breaches in recent years has resulted in increasing clamours for a greater emphasis on the individual’s right to privacy. This has resulted in an increasingly strict data privacy enforcement climate across the world.

This means that businesses that rely on websites to collect and process personal data may face hefty sanctions if they fail to comply with data privacy laws and regulations.

One key measure that businesses can adopt to mitigate the risks arising from data breaches is to publish a legal notice on their websites requesting for users to provide their consent to the business collecting and/or processing their personal data for specified purposes.

This is on the basis that as jurisdictions seek to adopt a coordinated approach towards data privacy enforcement, one concept holds true across data privacy regimes worldwide – the requirement for consent.

Third-Party Content

While it may be necessary to publish third-party content or links to external sites to facilitate business activities, there is a risk that such content or external sites may contain information that is false, offensive or even malicious in nature.

Under such circumstances, the business that operates the website may run the risk of being liable for making false/offensive statements or even perpetuating the transmission of malware. This could lead to heavy penalties and even a damaged reputation.

To exacerbate the situation, the business that operates the website may not have the ability to control the nature of the content being posted by users on its website, or the content of external sites. This means that the business may expose itself to massive risks that it is in no position to eliminate.

One measure that businesses may wish to adopt to mitigate such risks is to set out various disclaimers of liability with respect to their third-party content and/or external sites linked to their website. These disclaimers may be reflected on the website’s terms of use.

Privacy Laws 

What is personal data?

Described as “one of the hottest commodities in 21st-century commerce” on TodayOnline (a Singapore newspaper), personal data is defined widely under the laws of many jurisdictions to encompass data that can be used to identify an individual.

Accordingly, personal data potentially covers an extensive range of information – not just information such as names and contact details. The ambit of personal data could even include information such as a person’s bank account number.

Understanding what personal data constitutes will then equip you as a founder, to note the depth of privacy law obligations that your Startup is subjected to.

Know your privacy obligations

There has been a general proliferation of increasingly stringent privacy obligations amongst jurisdictions across the world.  One pertinent example that has resulted in companies all over the world scrambling to update their privacy policies is the infamous General Data Protection Regime (GDPR).

This proliferation has followed hot off the heels of the growing pervasiveness of the internet in every aspect of our lives (think social media, e-commerce, internet banking etc).

In this regard, it is imperative for every business to understand its privacy obligations. Indeed, the privacy laws of certain jurisdictions may apply across borders and may even apply to businesses that do not operate in such jurisdictions.

Please do engage a lawyer to advise you on your privacy obligations – money spent to prevent liabilities that may arise from your failure to comply with your privacy obligations is money well spent.

Data collection

As a general rule of thumb, your company should collect no more personal data than is absolutely necessary, to operate your business.

In ensuring that your company’s actions are in line with the above, make sure you take some time to consider what data is essential to your organisation before taking steps to collect it.

Data disclosure and usage – informing and obtaining consent

For some companies, data disclosure and usage are part and parcel of their business. Some examples include omnipresent social media sites like Facebook and LinkedIn.

While your Startup may not necessarily fall within the ambit of the above-mentioned, data disclosure and usage can still happen. In fact, data disclosure and usage happen more often than you would expect.

In doing so, it is vital that you take note of the following (some might say, stringent) obligations:

● Informing the individual of the company’s intended purpose for disclosing and/or using his/her personal data;

● Obtaining the individual’s express consent to disclose and/or use his/her personal data for such purposes; and

● Where the company intends to disclose and/or use the individual’s personal data, the company may do so solely for the purposes for which the individual has been informed and where the individual has provided his/her express consent.

Implement security measures

Even if you have been religiously compliant with the applicable privacy laws, a data security breach can still be a problem. A company is typically required to implement adequate measures to ensure the security of personal data in its possession. What constitutes as “adequate” would depend on a multitude of factors, such as:

● The nature of the personal data (e.g. how sensitive it is);

● Whether the personal data is contained on your IT systems; and

● The volume of personal data in your possession.

Basic measures to protect personal data may include:

● Ensuring that all virtual databases that contain personal data are password protected; and

● Limiting access to databases that contain personal data to only a select group of people within your organisation.

If you are not a whiz at IT and prefer not to deal with technical jargon like “databases” and the like, it may be prudent to enlist the services of a privacy consultant to ascertain the measures that your company should implement, and how such measures should be implemented.

Responding to data breaches

Whilst prevention is certainly better than cure, the possibility of data breaches can never be completely eradicated.

In this regard, it is important to implement adequate measures to ensure that any data breaches are swiftly and adequately dealt with so that any damage is limited as much as possible.

Basic measures that a company may adopt to facilitate swift response to data breaches include:

● Requiring all employees to make a report to a designated person immediately upon discovering a data breach; and

● Implement measures to communicate the occurrence of any data breaches to all your personnel as quickly as possible.

Have a privacy policy in place

To ensure that you and your company’s personnel adopt a uniform approach towards the handling of personal data, it is crucial to formulate an organisation-wide privacy policy.

Such privacy policy serves various important functions, including:

● Setting the tone across your company with respect to how seriously privacy obligations are taken; and

● Communicating your company’s protocols with respect to dealing with personal data and handling personal data breaches.

The provisions of such privacy policy may be made legally binding if they are incorporated into the terms of your personnel’s employment contract/service agreement.

Have robust data protection clauses in your contracts

With the prominent international hotel group Marriott being fined nearly US$123 million following a data breach where the personal data of 399 million guests was breached, it is clear that the liability arising from personal data breaches could potentially be very high. With that in mind, your company’s contracts should contain robust data protection clauses to ensure adequate protection.

At the barest minimum, these clauses should set out clearly:

● Each party’s rights and obligations with respect to personal data

● The consequences of each party’s failure to comply with its privacy obligations.

Train your personnel

One of the biggest causes of data breaches is human error. Your company can have the most innovative policies and the most advanced computer programmes with respect to data protection. Yet, a chain is only as strong as its weakest link, and the weakest link in the chain of personal data protection is often the humans behind the system.

In this regard, it is vital that you keep your personnel updated, reminded and adequately trained on your company’s data protection practices and platforms.

Organise personal data

In certain jurisdictions, companies are required, upon request, to provide each individual with his/her personal data in an accurate manner.

It is good practice for your company to keep organised records of all personal data that has been collected so that personal data can be easily accessed and accurately disseminated.

Risks Associated with Collecting Personal Data 

Risk 1: High costs of compliance

Companies that collect personal data are required to comply with a wide range of data privacy regimes across the world. This is due not only to the cross border nature of personal data transactions but also due to the extra-territorial nature of various data privacy regimes.

In this regard, it would be prudent for companies to make reference to the high watermark of data privacy standards across jurisdictions, in order to ensure compliance with all regimes. This means that the costs that companies would need to expend to comply with such standards could potentially be high. In particular, data privacy regimes across the globe generally require companies to adopt measures to safeguard personal data in their possession.

Depending on the amount of personal data in the company’s possession, the potential costs that a company may incur in drawing up such security measures (e.g. state of the art technology) could be very high and could prove to be a drain on the financial resources of a company.

Risk 2: Greater accountability to individuals

Collecting the personal data of a large number of individuals also means the companies will need to be accountable towards more individuals over how their personal data is used.

Data subjects may even have the right to request for companies to provide information on how their personal data is used, and companies are required to provide such individuals with accurate information on this – this may depend on the jurisdiction as well as the nature of the personal data in question (i.e. whether the personal data is particularly sensitive, such as where it relates to matters such as the individual’s religion, sexual orientation etc).

A failure to provide accurate responses within a stipulated timeframe may expose companies to severe liabilities.

Risk 3: Data breaches

Companies that suffer a data breach and are found to have failed to implement adequate security measures could be subject to very stiff penalties from regulators.

Even if a company is not found to have been liable for such breaches, the negative publicity surrounding such data breaches could have a huge impact on the company’s reputation in the marketplace.

Such negative effects on the company’s reputation could result in individuals refraining from furnishing their personal data to the company moving forward, and this may hurt the company’s operations and revenue streams.

Risk 4: Wide definition of personal data

The risks that we have highlighted above are exacerbated by the fact that personal data is generally widely across many jurisdictions. The general definition of personal data is “data that can be used to identify an individual”.

Accordingly, personal data potentially covers an extensive range of information – not just information such as names and contact details. The ambit of personal data could even include information such as a person’s bank account number.

What this means then, is that companies remain susceptible to the risks that we had highlighted above in relation to a wide range of data. Companies should thus be extremely careful to ensure that their data collection and processing practices as a whole remain stringent and top-notch.

Conclusion

Being on the right side of website security and compliance can go a long way. Make sure your businesses website is 100% foolproof when it comes to all website-related risks. 

Needless to say, our solution comes with a 24/7/365 helpline whereby one of our legal professionals can assist you with any queries that you may have.

Check out our Website terms checklist. 

WHAT’S NEXT?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Starting a business is exciting, but can be rather daunting since entrepreneurs are presented with a host of challenges. As a Startup founder, it is also a great opportunity to learn more about business-related rules, laws and regulations, which can often be complex to navigate.

Each and every legal decision made in the launch-phase of a business must be carefully considered since it has the potential to impact all aspects of the company. In this article, we examine some of the basic legal structures every Startup business owner should consider, along with the legal support you may need when entering the market.

Forms of Incorporation

The incorporation of a company refers to the formation of a legal entity that operates and exists outside of the business-owner’s personal affairs. This involves the drafting of legal documents, namely ‘Articles of Incorporation', which states the purpose of a company, particular details such as name and location, as well as the number of shares being issued, should there be any.

The incorporation of a Startup business clearly defines the responsibilities and obligations of the company, as well as more intricate details, such as taxes, financing and employment contracts. In the United States, incorporation of a business can take on various forms (which operate under different rules and regulations) such as an LLC, Sole Proprietorship, C-Corporation and S-Corporation.

It is always advised to seek legal advice when determining which incorporation structure is best suited for a new business, ensuring that all legal bases are covered and the company is set up for success.

Shares

If an entrepreneur intends to incorporate a company limited by shares and intends to engage investors, it is important to consider how many shares they intend to hold within the business structure and what type of shares..

An entrepreneur may wish to approach third-parties to invest funds in the business in return for profit shares in the company. This is a common method Startup owners use to generate funds for launching their businesses.

However, entrepreneurs should remain mindful that making use of second or third-party investors may result in reducing their own stakes held within the company. This could lead to the business-owner possessing less decision-making power and an imbalance within the executive structure.

In short, investor funds may come at the expense of valuable control in the business and should be carefully considered by striking the perfect balance between investor control and business ownership. Careful legal advice on protecting the founders position when taking on investors is critical. 

Issuance of Shares

Simply explained, issuance of shares refers to the shares in a business which are allocated and held by shareholders. Issued shares are a division of authorised shares that are held by company shareholders, whether internal members, external investors or members of the general public. Issued shares are the shares of a corporation which have been allocated (allotted) and are subsequently held by shareholders. 

Any and all decisions that concern share issuance should be carefully determined and legally sound to protect against potential losses.

Taxes and Accounting

All Startup business founders must pay critical attention to the subject of taxes and accounting. While this area can be quite complex and intimidating, following the first basic steps can make the process simple and worry-free.

-      Open a business bank account

This step helps to maintain a clear distinction between personal finances and finances dedicated to the business.

-      Track and record all business expenses

Much like keeping a close eye on the income and expenditure related to personal finances, all Startup owners should keep a close eye on business expenses, ensuring that there are no unaccounted for purchases and unnecessary expenditure.

-      Formulate a bookkeeping system

While it is not required to be complex or elaborate, establishing a reliable bookkeeping system is paramount to staying on top of company finances. A bookkeeping system will aid in recording, storing, retrieving and analysing all company financial records.

Furthermore, during the incorporation stage of a Startup business, it is advised to be thorough in analysing the methods of tax to which the business must conform. This may impact the business entity you choose. Taxes are calculated differently under every business structure, and should therefore be pre-determined. All necessary tax forms and documents should be completed under legal advice.  

Of course, a good accountant is likewise a good idea. 

Employment Law 

Should your Startup business include the prospect of having any employees, it is advised to be sufficiently knowledgeable of employment law. Failure to comply with state-sanctioned employment laws may lead to serious implications and could even result in criminal charges.

Becoming familiar with employment law will aid in drafting the necessary legal documents which will state the terms and conditions under which employment will be carried out. This may include details such as working hours, work location, salary and compensation, worker benefits and so on.

Employment law will also determine the working relationship between employer and employee, i.e. whether the engagement will be contractually, permanently or casually based - all of which must be agreed upon by all parties involved.

In today’s business climate who is genuinely an “independent contractor” and who is an “employee” is no longer so clear. So, you need to be very careful to ensure the basis upon which you are accessing help - from both employees and contractors alike.

Further details to be considered in an employment contract backed by employment law are workplace rules and regulations, company policy on confidentiality and grounds for immediate dismissal. Seeking legal advice to straighten out these particulars is crucial.

Confidentiality Policies 

As mentioned before, many companies rely on strict confidentiality in order to stay ahead of the competitive curve. Confidentiality policies can be explained as a statement set up to declare a company’s policy on confidentiality and what that entails.

These policies are aimed at clearly communicating to all company employees that certain information may not be shared outside of company walls. This often includes clauses to indicate that company members should be aware of their internet usage, uploads and downloads and any activity that may place the organisation at risk of losing valuable data.

Legally binding confidentiality policies must be signed by all employees and employers alike in order to protect company property and to protect against any legal action.   

Strategy Document

A strategy document is useful in formalising the general direction that a company will take with respect to achieving its desired goal. Documenting the company’s strategy formally is a great management tool that will assist with developing focus and directing resources to the organisation.

Prior to documenting the details of the discussion into a formal founder’s agreement, it is often a good idea to first commence on a strategy document.

As the Strategy document can be updated periodically, this helps with mitigating the risk of conflict where there is a misalignment in company direction and strategy – particularly when strategic plans shift with the passing of time.

Market advice

Good legal support ought to be commercial and practical. After all, legal support does not take place in a vacuum, but in the intricate world of commerce. In this regard, quality legal support would offer advice on how to manage legal risks in light of market practices.

Experienced lawyers are likely to have supported their fair share of Startups and have worked on enough deals to understand market practices, and how legal risks should be managed.

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

If you are planning to run your Startup business alongside co-founders, creating a Founders Agreement is an excellent choice to help your team plan and strategize critical elements of the business relationship. Let’s explore some of the components involved with drafting this type of legal document.

What is a Founders Agreement?

Founders Agreement contracts are legal documents designed by and for business partners who are heading into a Startup venture together. The document will serve as a blueprint for the basic purpose of the business, along with more intricate details such as the individual roles, responsibilities, and liabilities assigned to each partner. 

A carefully crafted Founders Agreement should capture the details of all pertinent procedures that serve to regulate the relationship between co-founders and the function of the company. The Founders Agreement serves as a legally protective measure for all parties and will also outline the procedure for entering or exiting the partnership. 

Fundamentals of a Founders Agreement 

Although it differs from business to business, the following section takes a look at some of the fundamental aspects to be included within a comprehensive Founders Agreement: 

Name of Company and Founders 

While this may seem like the obvious first step, it can often be overlooked. Make sure to start by clearly and accurately recording the name of your Startup, as well as the full names of each co-founder. Make sure to take the proper steps in ensuring that the businesses’ name has not been taken by another company to avoid potential legal implications. 

Business Function 

This section of the agreement should clearly state the purpose and function of the Startup. This may include a brief overview of the business plan and actions the business will take to achieve its goals. It should also cover some information on where each founder’s interest lies and various specifics as to how those interests tie into the ultimate business plan. 

Equity Breakdown

Here, you will determine what percentage of the company each member will own. This number is subject to change based on co-founders leaving or staying with the business. Should the company function as an LLC, it is advisable to discuss what percentage of management interest will be assigned to each co-founder. In this case, it is critical to identify which members will simply function as co-owners and who will take on active management roles within the business structure. 

Roles and Responsibilities of each Co-Founder 

Many Startup business co-founders have fallen victim to neglect this vital step. Oftentimes, the roles and responsibilities of each member have been verbally agreed upon based on countless discussions and business-meetings; however, this is a fast-track to misunderstanding and dispute. Founders Agreements should clearly define every single aspect of the individual roles and responsibilities for each co-founder. The document will be signed by all members and can be used for future reference when needed. A formal record of the roles and responsibilities acts as a precautionary measure against any contention regarding who does what (and when, and why, and how). 

Salary and Compensation 

This can be a tricky area, since a Startup business can often take some time before turning over a profit which enables co-founders to pay themselves a salary. However, every business is different and therefore this step should be carefully considered and tailored according to company capacity. The Founders Agreement should clearly state which members (if any) will be compensated, how much they will receive, how often payments will be made and any other rules and regulations concerning such payments. For example, a clause may be included to confirm that if the company should run into financial difficulties; the payments will come to a halt until further notice. 

Dispute Resolution

This step is taken to safeguard against any unnecessary resources being used in the case of disputes between or among co-founders. Dispute resolution clauses are terms within the Founders Agreement contract which serve to resolve disputes as either binding or non-binding solutions. Often, co-founders select to include rules that require the use of Alternative Dispute Resolution such as arbitration or mediation, as opposed to going to civil court to settle the matter.

Ultimately, the purpose of Dispute Resolution clauses is to secure an inexpensive and less exhaustive procedure for settling disputes, ensuring that such a process is settled as amicably as possible. 

Intellectual Property Rights 

Every aspect that goes into making your Startup business unique is referred to as Intellectual Property, which could be anything from unique designs, ideas, and blog posts to trademarks and patents. As a general rule of thumb, anything created by and for the company should be considered valuable IP. Some companies include work materials such as computers and phones as part of their IP arsenal. For the Founders Agreement, a clearly defined outline must be agreed upon by all co-founders as to what they consider to be company IP, what the terms are regarding selling the IP, how the profit is allocated, and who gets to make the final decision. 

Employee Stock Options 

Stock options refer to the right to buy a specific number of shares within the company at a set price, by a certain date. As Directors exercise a fundamental duty to act in the best interests of the company, the adoption of a stock option plan can assist in creating heightened employee loyalty and attracting the best talent. Having a Board Resolution that explicitly states the approval procedure where a stock option can arise is therefore useful in setting out employee expectations from the get-go.

Shareholders Agreement

The shareholders’ agreement sets out the rights, obligations and restrictions with respect to company shareholders, and typically covers matters such as restrictions with respect to the sale of shares, as well as the way certain corporate decisions are made.

Exit mechanisms

It is always best to plan ahead, which is the very basis of a Founders Agreement. Make sure to outline any circumstances that would lead to the immediate disbanding of the Startup and clearly state the terms of co-founder departure to avoid any unwanted issues. For example, what would happen if a co-founder dies, becomes ill, or goes bankrupt? What if a member chooses to leave for personal reasons? What does this mean for company shares and buyout rights?  These are all critical aspects that will facilitate a seamless exit procedure.

Much like any commercial relationship, the proper documentation of parties’ rights and obligations can set the stage for a successful and productive relationship from the outset. While there are various other aspects to be considered for a thorough Founders Agreement document, we hope these fundamental aspects have provided you with some of the basic elements to include in this document. 

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Within any professional business environment, disagreements and disputes are inevitable. Working alongside various personalities can often lead to a great deal of frustration and misunderstanding. Research shows that ‘founder dispute’ is a leading cause of Startup business failure. In this article, we take a look at some of the main reasons behind co-founder disagreements, and highlight the importance of establishing a clear alignment of views to ensure long-term success. 

Achieving Founder Alignment: Execute a well-drafted Founders’ Agreement

A well-drafted and thoroughly researched Founders’ Agreement is the first and most basic step in outlining the rights, responsibilities and obligations for each Startup founder. The document, which must be revised and signed by all parties, will significantly reduce the risk of contention between co-founders further down the line. 

Matters that ought to be covered in the Founders’ Agreement may include:

• Roles and responsibilities of each founder 
• Shares held by each founder 
• Restrictions on share transfer 

Although some founders may not see the need for this contract based on their friendship or good standing, a signed document could prove to serve as legal protection in the event of a disagreement and the potential folding of a business. In this regard, a comprehensive founders’ agreement could ironically preserve the friendship, even if the Startup should dissolve.

We recommend that before putting pen to paper on your shareholders agreement, you undertake a working “alignment session” with your co-founder/s. The purpose of this session is to actively discuss all the key points that every founder should have considered from the outset. While this may seem trivial practice, it is an important and precautionary method of ensuring all founders go into the project without any misconceptions. 

GLS offers a Shareholders Deal Shaper toolkit to help you facilitate this work session. 

Most common legal founder disputes (and how to avoid them) 

Lack of clarity around roles

By clearly defining and communicating individual roles and responsibilities assigned to each founding member, your business will be set up for achieving its goals. When an individual is unsure about their role and function, there is a lack of cohesiveness and teamwork, which will certainly result in aggravation and disagreement. Take all the necessary measures to ensure each partner is clear on what to do – this includes assigning titles and crafting job descriptions for each person. 

Differences in contributions

‘I’m working harder than you are!’ is a commonly heard phrase among co-business owners. This can be put down to a lack of planning and communication. Taking the time to equally allocate responsibilities will help to avoid some partners feeling overworked and frazzled, while others are coasting along. Distribution of responsibilities is crucial! Remember, the business is an investment for each member and should therefore be prioritised as such.

Map out certain clauses within the founders’ agreement for when a member is not performing to help you facilitate a quick solution. Also consider that each person is facing their own individual challenges which may affect their abilities. Providing an open platform for honest communication can help alleviate these issues. 

If additional funding is required

Seeking out funding for a Startup business is one of the most critical and challenging tasks for all members. Co-founders often run into serious disagreements about securing investors, and may drop the ball when it comes to sealing the deal. It is imperative for all co-owners to be on the same page when discussing the financial future of the business. Hashing out any concerns beforehand will allow your business to approach funding opportunities as a unit with a single goal in mind. Fighting about it will only steer you away from your goals. 

Decision making disparity

By being as clear as possible about the roles of each member, you will begin to realise that each business partner possesses a unique set of skills and talents. This will make the decision-making process a breeze. If someone is more financially adept – allow them the space to make the necessary decisions on behalf of the business. Much like if another partner is more inclined to making great marketing moves, allow them the freedom to explore and decide on which route to go. However, all decisions should still be agreed upon by all members. 

Differences in Compensation

Founders who also serve as employees are likely to receive a salary from Startup profits. It is not uncommon for such founder-employees to receive different salaries, which could become a source of discontent. When a founder-employee believes that they are receiving an unjustifiably lower salary compared to other founder-employees, therein lies the possibility of a rift developing. 

To avoid a dispute of this nature, a signed employment agreement should clearly indicate the appropriate compensation for founder-employees. The agreement would typically also cover other matters such as working hours, leave and non-negotiable obligations, leaving little room for future discrepancies.

Good practices to help avoid disputes:

In addition to your shareholder agreement, there are other good practices that you can implement in order to mitigate potential for dispute. 

Document all correspondence 

It is advisable to document all important correspondences with your business partners, preferably in writing. This could mean keeping a written record of all meetings as well as keeping an organised record of email correspondences or recording of any business-related discussions. This practice aids in eliminating any doubt or uncertainty regarding matters agreed upon during meetings and/or informal conversations. 

Formal Dispute Resolution

Ask any commercial lawyer and they will say the same thing – Formal Dispute Resolution is an absolutely vital provision to set out in any agreement. Dispute resolution, as the title suggests, dictates the process of formally and professionally resolving disputes amongst parties.

While the default convention is to adhere to the decisions of the courts, many countries are now encouraging companies to resolve legal disputes using Alternative Dispute Resolution (ADR) prior to filing in court.

Some ADR examples include:

Mediation

This procedure allows parties to convene and mediate their disputes with the help and supervision of a professionally trained, impartial third party. 

Arbitration

A confidential proceeding is typically utilised by parties to bring their disputes before an objective third party (i.e. an arbitrator) whose decision is binding and enforceable.

Informal Dispute Resolution

Senior managers and/or other personnel meet to discuss and attempt to resolve disputes in good faith and an equitable manner. Having these dispute mechanisms in your agreements can potentially help you save time and unnecessary costs. If you would like our assistance with this, get in touch for a free consultation with our GLS legal expert.

Looking for Legal Help when it comes to Founder Agreements? 

GLS offers invaluable information and resources to help define a clear founders’ agreement document, inclusive of all legal aspects. Check the related products in the side scroll bar or click here to get in touch.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Intellectual-Property Licence Agreement

Intellectual Property (“IP”) is generally defined to mean “creations of the mind” – these include inventions, literary and artistic works, and symbols/names/images used in commerce.

Depending on the nature of your business model, IP may form a crucial part of your operations. You may for example:

• require certain IP from third parties in order to operate your business and turn it into a profitable one
• provide third parties with certain rights in your IP in order to generate revenue

In situations where a party seeks to use the IP rights that belong to another party, it would be prudent for parties to enter into an IP licence agreement.

An IP licence agreement sets out the terms upon which a holder of IP rights grants to another party the permission to use its IP, and lends enforceability to these terms.

In this article, we examine the top 5 issues to look out for in an IP licence agreement.

Issue 1: Scope of licence

We start with the very subject matter that an IP licence agreement is intended to cover – the IP and the permissions in relation to these IP rights.

The IP licence agreement ought to cover the relevant IP that the parties have been in discussions over. These IP need to be set out as clearly and precisely as possible.

Where the IP is something that cannot be expressed precisely in print, parties would need to take innovative steps to set out these IP in the agreement. For example, where the IP is a sound bite, parties may wish to consider setting out within the agreement a link to a sound file that embeds that relevant sound bite.

The permissions that relate to these IP rights would also need to be expressed in an accurate manner. When contracting as an IP licensee, you would need to ensure that these permissions are sufficient for you to reap the benefit of the IP, and that there are no undue restrictions on these permissions. Restrictions may include:

• Time restrictions on the permissions
• Requirement to obtain consent for specific matters
• Permissions granted only for specific purposes

Issue 2: IP infringement

Where the licensor grants permissions in relation to its IP rights, the licensor exposes itself to the risk of its IP rights being infringed (either by the licensee or the licensee’s personnel).

It may thus be prudent for the licensor to require the licensee to take certain actions, in the event that the licensee detects an infringement of the IP rights. These actions may include:

• Notifying the licensor immediately of such a breach and providing all known details with respect to the breach
• Taking all steps necessary to mitigate the effects of the breach
• Make no comment or admission to any third parties with respect to such circumstances

Issue 3: Representations and warranties (R/W)

R/Ws are a form of performance assurance. Over the course of discussions between the parties with respect to the IP, the licensor is likely to make certain assertions with respect to the IP.

Given the important nature of the IP in question, a licensee may wish to consider requesting the licensor to undertake certain R/Ws with respect to these assertions.

The effect of obtaining an R/W with respect to such assertions is that where such assertions are found to be untrue, the licensee would be entitled to a wider range of remedies.

A breach of a representation would generally entitle the innocent party to rescind the contract (i.e. terminate the contract and restore parties to their respective positions prior to their entry into the contract). A breach of a warranty would entitle the innocent party to monetary damages.

Accordingly, where a R/W is breached, the innocent party has the option to claim monetary damages or to terminate (even rescind) the contract.

Matters in relation to which a licensee would typically require a R/W include:

• The use of the licensed IP rights does not infringe any third party’s IP rights
• There have been no third party claims that have been made against the licensed IP rights

Issue 4: Ownership of improvements to intellectual property

The licensee may at times make certain improvements to the licensor’s IP over the course of operating its business. These may entail certain enhancements to a patented invention or a registered design.

The IP license agreement should set out which party owns the IP rights in relation to such improvements. As a general rule, if a party (“Party A”) had requested the other party (“Party B”) to make improvements to Party A’s IP in exchange for some form of consideration, Party A ought to have the IP rights in such improvements.

In addition, parties may wish also to consider if there should be an obligation on a party to take any steps to ensure that the IP rights in such improvements are vested in the other party.

Issue 5: Exclusive rights intellectual property

Another important issue to consider is whether the licence with respect to the IP is exclusive or not.

If the licensee intends to gain a competitive advantage over its business rivals, it may wish to request for an exclusive licence from the licensor, so that other businesses would not be able to use that IP.

On the other hand, a licensor that relies on issuing such licenses as a source of income may not be inclined to agree to providing such licenses on an exclusive basis.

When examining an exclusivity clause in an IP licence agreement, it would be prudent to pay attention to the following matters:

• What are the circumstances under which exclusivity may be revoked?
• Are there any exceptions to exclusivity?
• What are the consequences if the licensor breaches its obligations of exclusivity?

WHAT’S NEXT?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Invoice legal requirements

Business activities typically involve the supply of goods and/or services in return for payment. The flow of goods, services and payments forms the backbone of the world of commerce.

Invoices form a crucial element of the process that enables the flow of goods, services and money. An invoice is a commercial document that sets out the goods and/or services that a supplier provides to a customer, as well as the agreed prices for these goods and/or services.

In addition to documenting the terms of sale, it is typical for the issuance or receipt of invoices to trigger payment obligations as well.

Given the importance of invoices in commercial activity, it is worth examining what should go into an invoice, to ensure that your commercial activities go according to plan.

In this article, we examine 5 key items that should go into an invoice.

Item 1: Agreed price & service price

The key elements of a commercial transaction are the goods and/or services being supplied, as well as their agreed price.

By way of best practice, the following information ought to be reflected:

• Where services are concerned, a precise specification of the services being supplied, as well as the time frame for which these services are supplied
• Where goods are supplied, the specifications of the goods and their delivery charges (if relevant)
• Quantities of goods and services supplied
• A breakdown of the prices of each good/service being supplied
• Total price

Indeed, it is crucial to document such information in an invoice, as such documentation will provide an evidentiary record of parties’ agreement with respect to the commercial transaction, in the event of dispute.

Item 2: Taxes including VAT and goods and service tax

Various taxes may be levied on the import and/or consumption of goods and services. These may include value-added taxes (including goods and service tax), as well as certain excise duties.

While the supplier is often under an obligation to remit these taxes to the regulatory authorities, consumers are typically required to bear at least part of the costs of such taxes. These costs are typically passed from the supplier to the consumer through sums payable pursuant to the supply of such goods and/or services.

The sums payable pursuant to such taxes ought to be reflected in the invoice. It is also prudent to reflect how such sums payable are computed – they are computed usually as a percentage of the purchase price of the goods/services.

Item 3: Payment terms

The right to receive payment remains hollow if there are no terms of payment. Terms of payment set out the rights and obligations of the supplier and customer with respect to payment, including the payment procedures that the customer is required to follow.

While payments terms are typically set out in the underlying sales contract between the supplier and the customer, it would be helpful to set out certain key payment terms in the invoice as well, for the customer’s ease of reference. These key payment terms may include:

• Payment deadline
• Currency for payment
• Bank account to remit payments to

Item 4: Dispute resolution procedure

There may be times where parties may dispute the information set out in an invoice. A customer may, for instance, raise a dispute on the price set out in an invoice on the basis that it was not what he/she had agreed to, or may raise a dispute with respect to the goods reflected on the basis that they were not what he/she had ordered.

Such invoice disputes are certainly not uncommon, given that they often arise from errors that human beings may commit on a regular basis. These errors may include administrative oversights and typographical errors.

Given the fairly common nature of invoice disputes, it is important for parties to set out an invoice dispute resolution mechanism that is both time and cost efficient.

While a comprehensive set of terms with respect to the invoice dispute resolution mechanism is likely to be set out in the underlying sales contract between the supplier and the customer, it would be helpful to set out certain key steps in the invoice as well. These may include:

• deadline for customer to inform supplier that it intends to dispute an invoice
• contact details of personnel to reach out to, in the event that the customer wishes to raise a dispute
• details that customer is required to set out when raising a dispute

Item 5: Invoice number

A business is likely to undertake many commercial transactions over the course of its operations. It is important for each commercial transaction to be identified as quickly and as easily as possible to ensure efficiency of operations.

The most common method that businesses adopt to identify transactions is to ascribe each specific transaction with its own unique serial number. This serial number ought to be set out in the invoice, for both the supplier’s and the customer’s reference, for a wide range of purposes, including:

• facilitating the raising and resolution of invoice disputes
• tracking whether payments have been received
• customers claiming any benefits (e.g. cashbacks or future discounts)

Conclusion

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Introduction to distribution agreements

A distribution arrangement entails a distributor purchasing goods from a manufacturer, and reselling such goods on the distributor’s own behalf.

From the outset, it is worth noting that a distribution arrangement is different from a mere re-sale arrangement. Under a re-sale arrangement, the buyer purchases goods from a manufacturer and sells them at a profit.

Under a distribution arrangement though, the parties may owe additional obligations to each other over and above the mere supply and purchase of goods. This is on the basis that the manufacturer may be relying on the distributor to penetrate a market.

These obligations may include:

• an obligation on the distributor to market the products in the relevant territory
• an obligation on the distributor to sell the products at specified prices and/or
• an obligation on the distributor to sell the products to specified purchasers

A distribution agreement sets out the respective rights and obligations of the parties in a distribution arrangement and lends enforceability to these rights and obligations.

In this article, we examine 5 key issues issues to look out for in a distribution agreement.

Issue 1: Scope of goods

Each party needs to be clear about the scope and nature of the goods that are being supplied. The supply of goods contract would need to set these out in sufficient granularity and precision.

Details that ought to be set out include:

• Quantity of goods supplied
• Specifications of the goods supplied
• Name of goods

Where contracting in the position of the distributor, it is important to examine these details carefully, to ensure that you get exactly the goods you need to fulfil any downstream obligations.

Issue 2: Distribution channels

A manufacturer may specify certain channels (e.g. online stores, brick and mortar retail shops etc.) through which the distributor may distribute the goods.

In this regard, it would be prudent to examine provisions with respect to distribution channels to examine the following:

• Is the manufacturer’s list of distribution channels exhaustive (i.e. can the distributor distribute goods through channels beyond that which are stipulated in the manufacturer’s list)?
• Does the manufacturer have a right to change the list of distribution channels?
• Is the distributor required to source for, and recommend, new distribution channels to the manufacturer?

Issue 3: Product marketing rights

As mentioned in the introduction, apart from general obligations with respect to the distribution of goods, a distributor may also be required to undertake certain marketing obligations, in order to aid the manufacturer’s market penetration efforts.

Issues to examine with respect to marketing provisions may include:

• whether there is an obligation on the distributor to set aside a fixed amount of money for marketing efforts in the region?
• whether there is an obligation on the distributor to use marketing material prescribed by the manufacturer?
• who bears the costs of advertising efforts?
• who determines how many campaigns to launch in any given period?

Issue 4: Title/risk

“Title” relates to the legal rights of ownership. A party with “title” in goods has the legal rights of ownership in relation to such goods.

“Risk” relates to the bearing of risk in relation to loss of and/or damage to goods. A party that bears the “risk” in goods bears the risk of loss and/or damage in relation to such goods.

It is important to note that both “title” and “risk” are distinct concepts. “Title” in goods can pass from one party to another without “risk” following suit, and vice versa.

Typically, a recipient of goods would prefer to have “title” in goods as quickly as possible and to receive “risk” in such goods as slowly as possible.

The converse will be true for a supplier of goods, i.e. retain title for as long as possible and pass risk to the customer as quickly as possible.

Issue 5: Product recall agreements

In the unfortunate event that certain safety hazards are detected in the manufacturer’s goods, the manufacturer may be required to recall products to comply with applicable laws.

In this regard, distribution agreements may set out various provision with respect to product recall. It is thus worth examining provisions with respect to product recall – common issues that are worth focusing on may include:

• Is the distributor required to take steps to assist the manufacturer with recalling products in the relevant territory? If so, what steps is the distributor required to undertake?
• What is the process for initiating a product recall?
• What is the flow of title and risk in products that are recalled, viz-a-viz the distributor and the manufacturer?

Conclusion

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

The mighty service level agreement (SLA)

Businesses constantly supply and receive services for the purposes of commerce. They supply services typically with a view to receiving revenue, and procure services typically with a view to bolster their own operations.

One of the key issues that parties need to pay special attention to, when engaging in the supply/procurement of services, is service levels. Briefly, service levels set out the service standards that a supplier is required to meet.

It is important for parties to agree on service levels, as this leaves parties with little doubt as to what the supplier is obliged to provide, and what the customer is entitled to receive. This prevents either party from being short-changed, and reduces the risk of disputes arising.

These service levels may be documented in a service level agreement. Such documentation lends enforceability to these service levels.

In this article, we examine the top 5 issues to look out for in a service level agreement.

Issue 1: Service levels of the agreement

We start with the very subject matter that a service level agreement is intended to cover – the service levels.

Service levels are crucial in a supply of services construct, for the reasons stated above. Accordingly, parties should pay careful attention to the way that the service levels are expressed in a service level agreement.

Service levels should be set out in precisely and unambiguously, so that parties have clarity over their rights and obligations. Other matters that parties should consider when examining service levels include:

• Do the service levels truly reflect the agreement between the parties?
• Can the service levels be escalated or de-escalated? If so, is the mechanism for escalation/de-escalated clearly and precisely set out?
• Are there any “catch-all” phrases in the description of the service levels (e.g. “and all things necessary)? When contracting as the service provider, pay careful attention to such “catch-all” phrases, as they may unduly expand your scope of service.

Issue 2: The levels of agreement

Yet, it does not stop at examining the service levels. Service levels could mean little if either party is entitled to change them at will at little or no notice. In this regard, parties should ascertain if either of them have the right to change the service levels.

If so, it would be prudent to examine the mechanism for changing service levels. Matters that parties may wish to examine include:

• Is the other party’s consent required in order to effect a change in the service levels?
• How much prior notice must a party provide to the other, if it intends to change service levels?
• Are there any limits to the range of service levels that a party is entitled to change?

Issue 3: What is an SLA breach & consequences?

Service levels do not have teeth unless there are consequences for breaching them. When contracting as a customer, it would be prudent to request for certain remedies in the event that the supplier fails to meet the service levels. Typical remedies include:

• Liquidated damages (i.e. payment of a pre-agreed sum in the event that certain service levels are not met)
• Withholding of payments
• Suspension of the service engagement
• Termination

As seen from the list above, the range of remedies can potentially be wide, and some remedies could be more draconian than others. In determining what remedies to adopt, factors to consider may include:

• How far short the supplier had fallen from the requisite service levels?
• Whether the breach had happened before over the course of the engagement?
• How crucial the services are to your operations?
• How much is being paid for the services?

Issue 4: Service level agreement roles and responsibilities

Yet, sometimes it takes 2 hands to clap in order for services to be delivered effectively. Depending on the nature of the services, the customer may be required to undertake certain tasks in order for the service levels to be met. A service provider may at times (to borrow the words of Jerry Maguire) need the customer to “help me help you”.

Take computer maintenance services for example. A supplier may rely on a particular software to undertake its maintenance services. In such cases, the supplier may need the customer to take steps to ensure that its computer systems are compatible with that software.

Under such circumstances, parties should agree on their respective responsibilities for the purposes of the service engagement, and set out such responsibilities clearly in a responsibility matrix within the service level agreement.

Issue 5: Verification

Service levels could mean little if the customer has no way of verifying if they have been met.

While some service levels may be easy to ascertain, others may be more difficult to ascertain, particularly if these service levels relate to complex technical matters or if they relate to properties that cannot be detected immediately by the naked eye.

Where service levels are difficult to ascertain, parties may wish to consider agreeing to a fixed mechanism for the purposes of verifying if they have been met. In coming up with a mechanism, parties may wish to consider a range of factors, including:

Is a professional expert required to verify if these service levels have been met?

Who bears the costs of verification tests?

What must these verification tests show in order for service levels to be deemed to be met?

Conclusion

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Personal data breach

Nearly every company deals with personal data. Indeed, data is the fuel for the knowledge economy, and is often crucial for the operations of any business.

Unfortunately, the occurrence of various high-profile data breaches by some of the largest companies in the world over recent years has led to an increasing focus on privacy rights and an increasingly strict data enforcement climate.

This means that the risks associated with companies collecting personal data have also grown substantially in recent years.

In this article, we highlight 5 key risks that companies face when collecting personal data.

Risk 1: High cost of data compliance

Companies that collect personal data are required to comply with a wide range of data privacy regimes across the world. This is due not only to the cross border nature of personal data transactions, but also due to the extra-territorial nature of various data privacy regimes.

In this regard, it would be prudent for companies to take reference to the high watermark of data privacy standards across jurisdictions, in order to ensure compliance with all regimes. This means that the costs that companies would need to expend to comply with such standards could potentially be high.

In particular, data privacy regimes across the globe generally require companies to adopt measures to safeguard personal data in their possession.

Depending on the amount of personal data in the company’s possession, the potential costs that a company may incur in drawing up such security measures (e.g. state of the art technology) could be very high, and could prove to be a drain on the financial resources of a company.

Risk 2: Who is responsible for ensuring compliance with data protection legislation?

Collecting the personal data of a large number of individuals also means the companies will need to be accountable towards more individuals over how their personal data is used.

Data subjects may even have the right to request for companies to provide information on how their personal data is used, and companies are required to provide such individuals with accurate information on this – this may depend on the jurisdiction as well as the nature of the personal data in question (i.e. whether the personal data is particularly sensitive, such as where it relates to matters such as the individual’s religion, sexual orientation etc).

A failure to provide accurate responses within a stipulated timeframe may expose companies to severe liabilities.

Risk 3: Risk of data breach

Companies that suffer a data breach and are found to have failed to implement adequate security measures could be subject to very stiff penalties from regulators.

Even if a company is not found to have been liable for such breaches, the negative publicity surrounding such data breaches could have a huge impact on the company’s reputation in the marketplace.

Such negative effects on the company’s reputation could result in individuals refraining from furnishing their personal data to the company moving forward, and this may hurt the company’s operations and revenue streams.

Risk 4: Wide personal data definition

The risks that we have highlighted above are exacerbated by the fact that personal data is generally widely across many jurisdictions. The general definition of personal data is “data that can be used to identify an individual”.

Accordingly, personal data potentially covers an extensive range of information – not just information such as names and contact details. The ambit of personal data could even include information such as a person’s bank account number.

What this means then, is that companies remain susceptible to the risks that we had highlighted above in relation to a wide range of data. Companies should thus be extremely careful to ensure that their data collection and processing practices as a whole remain stringent and top notch.

Risk 5: Risk of data breach can never be completely eliminated

The unfortunate reality is that the risks that we had highlighted above can never be completely eliminated.

Whilst measures can certainly be taken to alleviate these risks, the truth is that the greatest reason for data breaches remains human error. Human error often remains the weakest link in any compliance chain, and we all err from time to time!

Besides, even if the humans involved remain cautious, computer hackers out there often devise new ways and means to breach computer security systems – the enemy is far stronger than many of us expect.

In this regard, companies always need to be on their guard. While personal data may be indispensable for the operations of a company, they must be treated with extra care all the time. Vigilance is key. Even if you have been religiously compliant with the applicable privacy laws, data security breach can still be a problem.

Conclusion

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Part A: What is a Shareholders’ Agreement?

The importance of the Shareholders’ Agreement is undisputed in setting out the rights and obligations of shareholders in a company. A well drafted shareholders’ agreement has multi-fold capability as it establishes the rights of the shareholder, protects their investment in the company and governs how the company is managed.

As YOUR Startup is likely to have more than 1 founder, having a shareholders’ agreement can help you to seal the specific rights and obligations of you and your founder(s) and set out the percentage of ownership shares that have been assigned. In this article, we’ll share with you the basic insights that can allow you to harness the business-enabling potential of having a Shareholders’ Agreement and give you piece of mind in ensuring your rights as Founder are safeguarded.

Part B: Benefits & role of shareholders agreement

1. Setting out shareholder expectations

Stipulating shareholders’ rights and responsibilities will allow all shareholders to be on the same page and provide them with a good understanding of what they’re buying into.

2. Protects Shareholder Rights

A well drafted Shareholders’ Agreement will set out the rights and obligations of all current shareholders, offering enhanced protection to you and your shareholders in the event that a decision is made to offer new shares to a third party.

3. Diminishes shareholder disputes

No relationship is perfect, even amongst Shareholders. A comprehensive Shareholders’ Agreement can help to clearly set out the terms and procedures such that shareholders are in agreement. Any arising disputes will be dealt with in the dispute resolution procedures agreed among shareholders, preventing the need for gratuitous legal action.

4. Regulating the raising of Startup capital

A reliable Shareholders’ Agreement can endear you to investors by setting out specific investor rights and granting enhanced investor protection.

5. Increase Company’s Competitiveness 

Your Startup’s competitiveness can be protected and even increased through the use of restrictive provisions like confidentiality and non-competitive obligations accounted for in your shareholders’ agreement.

6. Privacy

Unlike the company’s constitution, the Shareholders’ Agreement will remain private and confidential and cannot be accessed by creditors or employees. This element of privacy would also allow for sensitive commercial details to be included in the Shareholders’ Agreement.

7. Protection of Minority Shareholders

Minority shareholders can better negotiate and protect their rights as an amendment to the Shareholders’ Agreement can only be carried out with the agreement of all shareholders party to the Agreement. In contrast, a company’s constitution can usually be amended with a 75% majority, marginalising minority shareholders.

8. Shareholder exit strategy

Should the shareholders “fall out”, the Shareholders’ Agreement can regulate issues such as share valuations and rights to pre-emption in departing shareholders. This would ultimately reduce the conflict between the shareholders and prevent the stagnation of the company during such an exit.

9. Company Financing

The Shareholders’ Agreement will outline the manner in which the company will be financed (Debt & Equity financing).

10.Company & shareholder dividends

The Shareholders’ Agreement can settle the dividend policy of the company. Issues such as when the dividends will be payable in addition to reinvestment options in lieu of a dividend payable can be established.

What GLS can do to help?

If you are convinced by the benefits of a Shareholders’ Agreement and want to be part of the exclusive club of safeguarding your interests for a fraction of the cost, we have tailored something for you - see the right hand scroll bar for the related products.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Introduction to Privacy law

Regardless of whether you are running an online platform or mobile application, or offering an original service – one thing’s for sure – almost every company deals with personal data.

Companies collect and analyse data in order to continuously develop their products and services, and market them to consumers.

Consequently, businesses from an early stage of development should ensure that they comply with privacy laws.

Non-compliance with privacy laws could result in severe consequences for your business.

Think Disney – the epitome of “all things good” – which was fined US$3 million in 2011 for processing and sharing the personal data of children under the age of 13 without parental consent.

Non-compliance could not only result in companies being slapped with a hefty fine or sanction – it could also result in bad publicity which collectively, could have a thoroughly detrimental effect on your business.

In this article, we aim to equip you with 10 privacy law basics to kickstart your journey to proper and compliant use of personal data. While privacy laws may differ across jurisdictions, various general principles remain largely consistent.

1) What are personal data privacy laws?

Described as “one of the hottest commodities in 21st century commerce” on TodayOnline (a Singapore newspaper), personal data is defined widely under the laws of many jurisdictions to encompass data that can be used to identify an individual.

Accordingly, personal data potentially covers an extensive range of information – not just information such as names and contact details. The ambit of personal data could even include information such as a person’s bank account number.

Understanding what personal data constitutes will then equip you as founder, to note the depth of privacy law obligations that your start up is subjected to.

2) Know your privacy obligations (GDPR)

There has been a general proliferation of increasingly stringent privacy obligations amongst jurisdictions across the world.

One pertinent example that has resulted in companies all over the world scrambling to update their privacy policies is the infamous General Data Protection Regime (GDPR).

This proliferation has followed hot off the heels of the growing pervasiveness of the internet in every aspect of our lives (think social media, e-commerce, internet banking etc).

In this regard, it is imperative for every business to understand its privacy obligations. Indeed, the privacy laws of certain jurisdictions may apply across borders and may even apply to businesses that do not operate in such jurisdictions.

Please do engage a lawyer to advise you on your privacy obligations – money spent to prevent liabilities that may arise from your failure to comply with your privacy obligations is money well spent.

3) Data collection

As a general rule of thumb, your company should collect no more personal data than is absolutely necessary, to operate your business.

In ensuring that your company’s actions are in line with the above, make sure you take some time to consider what data is essential to your organisation before taking steps to collect it.

4) Consent to the processing of personal data and usage

For some companies, data disclosure and usage are part and parcel of their business. Some examples include omnipresent social media sites like Facebook and LinkedIn.

While your start up may not necessarily fall within the ambit of the above-mentioned, data disclosure and usage can still happen. In fact, data disclosure and usage happens more often that you would expect.

In doing so, it is vital that you take note of the following (some might say, stringent) obligations:

• informing the individual of the company’s intended purpose for disclosing and/or using his/her personal data
• obtaining the individual’s express consent to disclose and/or use his/her personal data for such purposes

Where the company intends to disclose and/or use the individual’s personal data, the company may do so solely for the purposes for which the individual has been informed and where the individual has provided his/her express consent.

5) Implement suitable data security measures

Even if you have been religiously compliant with the applicable privacy laws, data security breach can still be a problem.

A company is typically required to implement adequate measures to ensure the security of personal data in its possession. What constitutes as “adequate” would depend on a multitude of factors, such as:

• the nature of the personal data (e.g. how sensitive it is)
• whether the personal data is contained on your IT systems
• the volume of personal data in your possession.

Basic measures to protect personal data may include:

• ensuring that all virtual databases that contain personal data are password protected
• limiting access to databases that contain personal data to only a select group of people within your organisation

If you are not a whiz at IT and prefer not to deal with technical jargon like “databases” and the like, it may be prudent to enlist the services of a privacy consultant to ascertain the measures that your company should implement, and how such measures should be implemented.

6) How to respond to a data breach

Whilst prevention is certainly better than cure, the possibility of data breaches can never be completely eradicated.

In this regard, it is important to implement adequate measures to ensure that any data breaches are swiftly and adequately dealt with, so that any damage is limited as much as possible.

Basic measures that a company may adopt to facilitate a swift response to data breaches include:

• requiring all employees to make a report to a designated person immediately upon discovering a data breach
• implementing measures to communicate the occurrence of any data breaches to all your its personnel as quickly as possible

7) Have a privacy policy in place

To ensure that you and your company’s personnel adopt a uniform approach towards the handling of personal data, it is crucial to formulate an organisation-wide privacy policy.

Such privacy policy serves various important functions, including:

• setting the tone across your company with respect to how seriously privacy obligations are taken
• communicating your company’s protocols with respect to dealing with personal data and handling personal data breaches

The provisions of such privacy policy may be made legally binding, if they are incorporated into the terms of your personnel’s employment contract/service agreement.

8) Have a robust data protection clause in your contracts

With the prominent international hotel group Marriott being fined nearly US$123 million following a data breach where the personal data of 399 million guests was breached, it is clear that the liability arising from personal data breaches could potentially be very high.

With that in mind, your company’s contracts should contain robust data protection clauses to ensure adequate protection.

At the barest minimum, these clauses should set out clearly:

• each party’s rights and obligations with respect to personal data
• the consequences of each party’s failure to comply with its privacy obligations

9) Train your personnel

One of the biggest causes of data breaches is human error. Your company can have the most innovative policies and the most advanced computer programmes with respect to data protection.

Yet, a chain is only as strong as its weakest link, and the weakest link in the chain of personal data protection is often the humans behind the system.

In this regard, it is vital that you keep your personnel updated, reminded and adequately trained on your company’s data protection practices and platforms.

10) Organise personal data

In certain jurisdictions, companies are required, upon request, to provide each individual with his/her personal data in an accurate manner.

In this regard, it is good practice for your company to keep organised records of all personal data that has been collected, so that personal data can be easily accessed and accurately disseminated.

Conclusion

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Why are trademarks important?

A trademark is a distinctive mark that identifies goods or services that are provided by an individual or corporation, and forms an important aspect of commercial activities.

In this regard, it is important for businesses to have exclusive rights in their trademarks, for a variety of reasons, including:

• to have the exclusive right to use that trademark to identify its goods or services, so that third parties are restricted from using that trademark to pass off their own goods and/or services as the business’
• to prevent third parties from using the business’ trademarks in a derogatory manner

There may, however, be times where a business may wish to provide third parties with a licence to use its trademarks. This may be done for a host of purposes, including:

• in order to obtain revenue through a franchise or a white labelling arrangement – the licensing of one’s trademarks to third parties in return for a monetary fee can form a substantial source of revenue for businesses
• in order to provide a separate corporate vehicle with an asset on its books, for the purposes of account keeping

The terms of the licensing of one’s trademarks are typically set out in a trademark licence agreement. However, have you ever wondered why it is important to have a trademark licence agreement?

In this article, we examine 5 key reasons why a company wishing to licence its trademarks should enter into a trademark licence agreement.

Reason 1:What does a trademark protect?

While a business may wish to provide a third party with a licence to use its trademarks, it will certainly not be wise to provide such third party with an unbridled right to its these trademarks, especially if the business wishes to ensure that it retains a competitive advantage over its rivals and preserve its good reputation.

A trademark licence agreement could (and should) set out certain restrictions with respect to the third party’s right to use the trademarks. Restrictions may include:

• restrictions on the purposes for which the third party may use the trademark – it may be solely in relation to certain products, or for certain territories;
• prohibitions against sub-licensing
• time restrictions with respect to the use of such trademarks
• restrictions on the persons within the organisation who may use such trademarks

Reason 2: Trademark infringement & trademark restrictions

Where a business provides third parties with a licence to use its trademark, the business exposes itself to a greater risk that its rights in these trademarks may be infringed.

After all, the trademark may be used across a wider range of goods and territories, and more people will have some form of access or another to the trademark.

A business may thus wish to require its third-party licensees to take certain actions, in the event that they detect or suspect an infringement in the business’ rights in its trademarks. These actions may include:

• notifying the business immediately of such a breach and providing all known details with respect to the breach
• taking all steps necessary to mitigate the effects of the breach
• making no comment or admission to any third parties with respect to such circumstances

These requirements may be set out in a trademark licence agreement.

Reason 3: Trademark indemnity clause

An indemnity is an obligation on a party (“Indemnifying Party”) to compensate another party (“Indemnified Party”) for losses that the Indemnified Party may suffer as a result of an event (“Indemnified Event”). It is a tool that parties use to transfer risk.

An Indemnified Party may request for an Indemnifying Party to provide an indemnity in relation to an Indemnified Event, if the Indemnified Event is beyond the Indemnified Party’s control and that losses which the Indemnified Party may potentially suffer as a result of such event are extremely high.

A business that provides third parties with the right to use its trademarks exposes itself to the risk of huge losses, particularly if third parties use these trademarks in a distasteful or inappropriate way, or where these third parties fail to comply with applicable laws when using such trademarks.

In this regard, it may be prudent for a business to obtain certain indemnities from these third parties in relation to their use of the licensed trademarks, so that the business may minimise (or even eliminate) any losses that may arise as a result of matters that are beyond its control.

Such indemnities may be set out in a trademark licence agreement.

Reason 4: Sets out termination clause in trademark contract

A business may not want its licensing arrangements to go on forever. Even if they do, it would be prudent for a business to have rights to terminate the licensing arrangement, if that arrangement becomes untenable and if remaining in that arrangement would cause more harm than good.

Circumstances under which a business may find that a licensing arrangement becomes untenable may include:

• where the licensee keeps flouting its licensing restrictions to the detriment of the business’ profitability and/or reputation
• where the licensee breaches applicable laws
• the trademark cannot be registered in the licensee’s territory

These grounds of termination, as well as the consequences of termination ought to be set out in a trademark licence agreement.

Reason 5: Trademark Enforcement

As a general point, having a written trademark licence agreement lends enforceability to parties’ rights and obligations in relation to the trademark licensing arrangement for various reasons, including:

• terms are set out in writing, and this serves an tangible evidence of the parties’ intentions with respect to the engagement
• signatures serve as evidence of parties’ agreement to the written terms

It is thus key for parties to have a written trademark license agreement.

Conclusion

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Do I need a cookie policy on my website?

How times have changed! Decades ago, the word “cookie” would bring to mind a sweet confectionery laden with chocolate chips or rainbow sprinkles. Today however, the word “cookie” could bring to mind, in equal measure, a concept that is connected to data and internet browsing.

Despite the evolving definition of “cookie”, few people know what exactly a web “cookie” is. Briefly, a computer “cookie” is a packet of data that is sent from a website and stored on the user’s computer, through the user’s internet browser.

Web cookies can prove useful for both the website operator and the website user. They allow website operators to track the activities of visitors to the website, in order to facilitate web operations. They also allow for website visitors to engage in web activities with more convenience – cookies for instance allow for passwords to be stored on commonly used sites for easy access, or for visitors to keep track of the items in their online shopping cart.

Yet, the usage of “cookies” also brings up various concerns from a legal and compliance perspective. An immediate concern that may spring to mind for website visitors is whether that privacy rights will be infringed through the use of “cookies”. Likewise, website operators may be concerned that their usage of “cookies” will result in an infringement of data protection laws.

Given the risks involved, it would be prudent for companies that operate websites for business activities to have a cookie policy.

Reason 1: Obtain consent to the processing of personal data

The usage of cookies is likely to involve the collection and processing of personal data. This means that the laws and regulations surrounding the collection and processing of personal data applies to the usage of cookies.

Personal data is widely defined to encompass data that can be used to identify an individual. In this regard, there is a very wide range of data that can potentially fall within the definition of “personal data”.

Businesses often collect and process individuals’ personal data for the purposes of their operations. Yet, the data privacy enforcement climate is becoming increasingly strict amidst the emergence of high-profile data breaches.

Besides, data privacy regimes are becoming increasingly consistent as jurisdiction seek to adopt a coordinated approach towards data privacy enforcement. One concept holds true across data privacy regimes worldwide – the requirement for consent to collect and/or process personal data for specified purposes.

A cookie policy informs website visitors of the purposes of the usage of cookies, as well as how website visitors may disable cookies on their web browser.

Reason 2: Greater accountability for the data protection officer and fewer data breaches

Data privacy regimes around the world not only require companies to obtain consent from individuals with respect to their personal data, but also to take measures to maintain accountability to individuals who provide such consent (“data subjects”).

Measures that companies may be required to take to maintain accountability include acceding to data subjects’ requests on information with respect to the status of their personal data and how their personal data has been used.

A cookies policy can facilitate such accountability efforts, through various means, such as:

• Providing website visitors with the contacts details of the person whom they are to reach out to, in the event they wish to make certain requests in relation to their personal data
• Setting out the procedures for conveying data subjects’ requests

Reason 3: Is a cookie policy a legal requirement?

In certain jurisdictions, companies are required to have a standalone cookies policy. In particular, the European Union has enacted laws that require websites to post a standalone cookie policy – separate from its privacy policy.

Given the cross-border nature of commerce, it would be prudent for companies to adhere to the high watermark of standards as far as data privacy compliance is concerned, in order to ensure smooth operations across as many jurisdictions as possible.

Reason 4: Harsh consequences of failure to comply with data privacy laws

It is getting increasingly important to comply with data privacy laws and regulations around the world.

The proliferation of high-profile data breaches in recent years has resulted in a stricter data privacy enforcement climate across the globe.

A failure to comply with data privacy law and regimes could result in hefty penalties, as well as a tarnished reputation. All these could result in huge losses that could potentially cripple your business.

A cookie policy is key to ensure compliance with data privacy laws and is a quick win – simply publishing such a simple document on your website could potentially save your company huge amounts of money.

Reason 5: Source of reference for internal data privacy

While cookie policies may be public facing, they may also serve as an important point of reference for your own personnel who operate your website.

Cookie policies may serve as a reminder to your personnel on various cookie-related matters, such as to how cookies should be used.

Indeed, this is important as the weakest link in any company’s data compliance ecosystem is human error – after all, we all err from time to time and human error cannot be eliminated.

Measures can, however, be taken to reduce human error, and a cookie policy is one such measure.

WHAT’S NEXT?

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

INTRODUCTION

Every party enters into a business relationship hoping not to get into a dispute. Yet, courts and arbitration centres alike remain packed with people seeking a resolution to their contractual disagreements.

It is startling to know that even the most well managed businesses can fall into disputes with their counterparties (i.e. suppliers, customers and partners).

Adhering to the age-old adage that “Prevention is better than Cure” – it is advisable to evade altogether the possibility of disputes, given that it takes precious time and energy away from your business.

To help you dodge problematic situations like these, we have set out in this article, 10 basic pointers on how one might be able to avoid disputes.

Key Problems with Disputes

As a starting point though, it may be worth examining why disputes can be so harmful to a Startup like yours.

10 basic pointers on conflict resolution

With the harmful effects of disputes in mind, we set out 10 basic pointers for dispute avoidance.

1. Effective communication is key

Parties should always provide each other with feedback, especially if they feel that something is not right. It is better to communicate constantly and to nip problems in the bud, as opposed to letting them brew and escalate.

2. Do not focus on the problem 

Focus on the solution instead. Difficulties between parties should be approached in a collaborative manner. Instead of focusing on the problem and blaming each other, the focus ought to be on finding a way to resolve the difficulty and continue nurturing the business relationship.

3. Have comprehensive contracts

Contracts should set out the parties’ respective rights and obligations clearly and comprehensively. There will be little room for doubt and dispute when the terms stipulated in the contract are indubitably and accurately reflective of parties’ intentions.

4. Agree in writing

While contracts may be formed verbally or in writing, it is recommended that contracts be set out in writing for evidentiary purposes. Where there are no clear records of what was agreed upon (in oral contracts or otherwise poorly drafted contracts), the lack of clarity gives rise to a possibility of differing contractual interpretations, which in turn sets the stage for a costly legal dispute should parties fail to see eye to eye or compromise.

5. Read your contract

Parties should read their contracts before signing them, in order to address any points of deviation before setting their respective rights and obligations in stone.

6. Hire a lawyer

If you cannot decipher your contract or are unsure about your rights and obligations, you should hire a lawyer to help interpret your contract and explain your rights and obligations. A lawyer is often the most effective and reliable tool that you can utilise to safeguard your interests.

7. Uphold your end of the bargain

As long as the contract is clear and comprehensive, parties should have no room for dispute if they perform their contractual obligations in accordance with the terms of the contract. This would entail briefing your personnel properly, so that they may comply with any processes that may be set out in the contract.

8. Have clear contractual provisions with respect to waivers

There may be times when you decide to waive a counterparty’s breach. Contracts should set out clearly the effects of each waiver, and how each waiver should be given. A commonly adopted position is to specify that waivers are to be given in writing. This reduces the prospect of inadvertent waiver of rights.

9. Implemented a conflict resolution model

The contract can set out that disputes are to be resolved through a multi-tiered dispute resolution mechanism. The initial steps of this mechanism may entail good faith discussions between representatives of each party. This may help in ensuring that disputes are resolved in an amicable manner and alleviate the risk of disputes being resolved through expensive means (e.g. litigation, arbitration).  

10. Effective organisation

 Make sure that all contracts, as well as correspondences with respect to each contract, are organised and stored neatly. This ensures that these documents are readily available for your reference, when any doubts about your rights and/or obligations arises. 

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Selecting a fitting business vehicle for your Startup can be a confusing and intimidating process. However, by conducting the necessary research and arming yourself with reliable legal information, you will be equipped to make the best decision. The following article will take a look at examples of different business vehicles and the steps associated with choosing an appropriate one for your company. 

Understanding Business Vehicles

Failing to adopt a suitable structure for a new business may result in unnecessary challenges and financial losses. Much like the conventional use of a motor vehicle allows for transportation from one point to another, a business vehicle is a legal structure that will carry your business through all its activities and processes. 

It is important to remember that the type of business vehicle selected for your business will inform many key processes such as taxes, financial loans, investments and various legalities. 

Types of Business Vehicles 

As a new business owner, learning and understanding the different characteristics of each existing business structure will help to determine which one is most suited to your company’s needs. Below, we take a look at some of the most common business vehicles, along with the pros and cons of each one.

Sole Proprietorship

Perhaps the simplest and most common type of business structure, a sole proprietorship is run by a single owner who takes responsibility for any and all business conduct. The business does not have to be registered and may operate under a trading name or the name of the sole owner. In some cases, the sole proprietor may need to obtain special licences or permits depending on the industry. While establishing a sole proprietorship is pretty straightforward, there are various factors to consider before settling on this structure. 

Pros

• Clear-cut outline and structure, making it simple to start
• All business regulations are decided by the owner (meeting structures, administrative functions, financial activities, etc.)
• Simple tax process 

Cons

• Individual financial responsibility – all debts and liabilities fall to the sole proprietor. This could result in the seizing of the owner’s personal assets in the case of an entity winning a lawsuit against the business
• Sole proprietorships often struggle to secure funding and interest from investors since there is no discernible separation between the business and the business owner
• Overlap of personal and business finances often leads to financial risks 

General business partnership

When two or more individuals collaborate and go into business together, it is called a general business partnership. Many professional firms and business entities have adopted this structure, owing to its well-established reputation as a reliable business vehicle. Within a general business partnership, all business owners are responsible for business activities and processes, and they share all profits and losses. Much like a sole proprietorship, general business partners do not have to be registered, however, contracts and agreements between partners must be established. 

Although this business vehicle is a great option for newly established businesses, it is highly advisable to be thorough in selecting a suitable business partner. Disputes of any kind can be a high-risk factor for the company. All partners will be held responsible for the actions of a single partner, should any contracts or agreements be violated.  

Pros

• Clear-cut outline, making it simple to start
• Business owners make all decisions on how the company is run
• Profits and losses are divided equally among partners
• Business losses can be deducted from personal tax returns 

Cons

• All owners are responsible for business-related debts and liabilities
• Joint liability means that each partner can be held personally responsible for the negligent or intentionally damaging behaviour of their business partners
• May be harder to secure funding and investment opportunities 
• Disagreements or internal disputes could lead to the downfall of a company

Limited liability partnership

The keyword in a limited liability partnership is flexibility. In order to form this kind of business structure, the partnership must be registered with the state. In a limited liability partnership, we see two types of partners, namely the business owners who operate all functions of the business (much like the general partners outlined above) and the investing partners (commonly known as silent partners). 

Based on this structure, limited partners/investors do not inherit the same level of liability as the general partners since they are acting only as financiers and have no say in the general operations of the business. In essence,  the limited partners are considered to be a separate entity and are only liable for the money they have chosen to invest, along with any agreed upon personal guarantees.  

All members of the limited liability partnership must provide a registered address for the business, and maintain an updated register of existing members. 

Pros 

• Acts as the best business vehicle for raising funds since investors are able to provide finance with little to no personal liability
• Limited partners are free to withdraw at any time and the business can remain operational
• General partners maintain full control over business operations while being able to secure the necessary funding

Cons 

• Requires state registration
• General partners accept all personal liability for any debts associated with the business 
• Limited partners face the risk of personal accountability for any losses or legal matters should they take on an active role within the business 

C corporation 

An C corporation is a US business structure which can be explained as a limited liability entity that exists separately from company owners. In addition to the owners (also known as shareholders), a board of officers and directors take control of this business entity, although it is possible for one person to be at the helm of a C corporation.

This business vehicle will include a considerably different set of rules and regulations, tax processes and company laws. Shareholders and owners, for example, are taxed separately from the business entity.

Pros

• Shareholders do not have personal accountability for any business-related debts and liabilities
• No restrictions exist regarding who can hold company shares 
• Recognition and enhanced interest from potential investors
• Easily transferable shares
• Significant legal protection

Cons

• Double taxation – shareholders pay personal income taxes on their profits while the business pays corporate tax on company income  
• More stringent rules and regulations regarding company laws and operations
• Costs more to form than other business vehicles  
•  Business losses may not be deducted from personal income taxes 

S corporation 

Another US based concept, the structure of an S corporation protects the personal assets of an owner from any corporate liability via pass-through taxation. This means that the company’s profits are taxed with the owner’s personal tax return and the corporation is not taxed as a business entity. S corporations are limited to having 100 shareholders or less. 
 

Pros

• No personal liability and risk of losing personal assets for shareholders
• No double taxation
• Pays employee dividends
• Recognition and enhanced interest from potential investors

 Cons

• May incur more fees and administration than other business vehicles
• Stringent rules and guidelines for company operations
• Owners have less control over company processes 

How to choose the best business vehicle type

As we’ve outlined in this article, carefully selecting which business vehicle is best for your company can help propel the entity toward a successful future. More importantly, choosing one that does not suit your business and its needs could lead to major financial and legal challenges. 

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Intellectual Property has fast become a precious commodity used as collateral for both existing and start-up businesses. As with other forms of collateral, various classes of Intellectual Property Rights (IPR) have been established in order to cover different types of innovation. The following article will outline the classes of Intellectual Property Rights and some of the methods used to monetize IP. 

Understanding Types of Intellectual Property Rights 

In order to effectively manage your business’s IP, it is important to understand the different classes of Intellectual Property Rights. To help you pick out the most appropriate IP classification for your ideas, we have broken down the basic outline of every class. 

1. Patent

A patent is an exclusive right granted for an invention. An invention is a product or process that provides a new way of doing something, or that offers a new technical solution to a problem. 

A patent owner has the exclusive right to make, use or distribute their patented invention. Third parties cannot commercially make, use or distribute such patented inventions unless the patent owner’s consent is obtained. A patent generally lasts for up to 20 years from the date of registration.

Prerequisites for invention patents: 

• Must have a unique characteristic that is not part of the body of existing knowledge in its particular technical field
• Must be of practical use
• Must be disclosed and described by the applicant in a way that enables others to make and use the invention
• Must represent a non-trivial extension of what was known by a person with average knowledge of the technical field
• Subject matter must be considered “patentable” under applicable law

2. Trademark

A trademark is a distinctive mark that identifies goods or services that are provided by business entities in the course of business. A trademark owner has the exclusive right to use the relevant distinctive mark to identify its goods or services.

Trademarks have traditionally encompassed visual distinctive marks (e.g. logos). It should be noted, however, that non-traditional marks such as sound or smell can also attract trademark protection (e.g. the Intel Inside chime). Trademark protection typically lasts for 10 years, but may be extended for further periods of time upon the payment of relevant fees.

3. Registered designs

A registered design refers to the ornamental or aesthetic aspects of an article. The owner of a registered design has the exclusive right to use that design. This right generally lasts between 10 to 25 years, depending on the territory. One example of a registered design is the Coca-Cola bottle, without any text or branding.

4. Copyright

Copyrights protect literary and artistic works – these include songs, novels, paintings and films. A creator of a literary or artistic work that fulfils various criteria (including originality) owns a copyright in such work.

The owner of a copyright for their literary or artistic work has the exclusive right to use such work, as well as the exclusive right to authorise others to use such work on agreed terms. There is no requirement for a person or corporation to obtain a registration in relation to copyright. The copyright subsists throughout the lifetime of the creator and for a period of time after their death (typically around 70 years).

5. Trade secret

Trade secrets are confidential business information that provides a business with a competitive advantage. These could include manufacturing or industrial secrets and commercial secrets.

Generally, there are 3 requirements for information to be fulfilled in order to be considered a trade secret:

• The information is not generally known among, or readily accessible to, circles that normally deal with the kind of information in question
• It must have commercial value due to its secrecy
• It must have been subject to reasonable steps by the rightful holder of the information to keep it secret

Unlike other IPRs, trade secrets are protected without registration. As such, they can be protected immediately and for an unlimited period of time. The unauthorised use of such information by persons other than the holder will be regarded as a violation of the trade secret.

6. Domain names

Domain names refer to website addresses. A domain name is registered by an organisation to enable internet users to locate the organisation’s site on the web. Domain names are registered and protected on a global level by 1 organisation – ICANN.

Registered domain names serve as protection against unauthorised uses of website addresses by another person or entity, and have become increasingly important given the proliferation of e-commerce.

Monetising your IP

Granted that IP could prove extremely valuable, businesses may choose to assign some of their IPR to third parties in exchange for a fee. These activities have, in many cases, proven to be a substantial source of revenue. 

Methods of IP Monetisation 

Depending on the financial standing, business capabilities, and the market within which your IP exists, it is possible to generate a significant profit using various methods of monetization. It is important to consider whether you would like your IP to be commercialized within your business or alongside a partner, whether you are looking to have your product marketed, manufactured, or sold, and whether or not you want to outsource. The following methods are some of ways you can monetize your IP and make it work for you. 

​Selling your IP - Intellectual Property Assignment Agreement 

The complete sale of IP is referred to as an assignment. This takes place when ownership is legally transferred to an individual or entity for an up-front sum of money. If your business is looking to gain an immediate profit, this strategy can help you to achieve that goal. Once the IP owner has transferred their ownership, there can be no further participation or expectation concerning the IP and its performance or function. 

Licensing your IP 

IP licensing is when the owner of IP rights grants permission to an individual or entity to make use of the IP under terms agreed upon by both parties. There are various forms of licensing available which can be a valuable method for commercializing IP. This method of IP monetization can be especially useful for a business with limited funds and resources needed to develop or market the product or service.

Any class of IP can be licensed, but is more commonly used for copyright, patents and trademarks. The use of the IP is negotiated between the parties involved and can only be used within the constraints of the agreed upon conditions, also known as legal exclusivity. 

Sell products under your IP 

Another great way of monetizing IP is to create marketable, sellable products using your own IP. This will require all the necessary resources, research, funding, and expertise needed to produce innovative and creative products which can be taken to market. 

Sue IP Infringers 

In certain business contexts, IP owners do not commercialize their IP or sell products, but rather generate income by suing IP infringers who misuse their registered IP. Another name for a company such as this is a non-practising entity or NPE. 

Collaborate with Investors

IP can draw significant attention from potential investors. If your company and its IP could prove valuable to a specific investor, make sure to make information about your IP available to them. Collaborating with investors could thrust the business into the commercial market and propel the business toward success. 

Way forward

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.  

Checklist to Protect your IP

We have come up with a list of viable suggestions you can take to best protect your money-making ideas.

Keep this list of our seven top tips handy for when you begin to evaluate your intellectual protection policy.

1. Conducting an IP Audit

Conducting an IP audit can be carried out to help:

• identify where IP is used in your organisation
• identify the ownership of the IPR
• assess the value of the organisation’s IP’s

Such an audit would facilitate the development of the IP portfolio by identifying potential IPR to obtain and assessing the progress in obtaining such rights. It would also make it easier to check third party infringement of the organisation’s IPR and flag out renewal or end dates.

2. Type of IP Protection – Trade Secrets vs Patent Protection

After identifying the IP critical to its business, an organisation should decide how it would like to protect its IP i.e. through a patent, trademark, trade secret, etc.

While the choice of IPR is probably obvious in most cases, there might be two applicable IPRs that could be obtained. In such cases, it is important to consider which protection is best suited for the commercialisation of the IP.

For example, such consideration would arise if the organisation’s inventions can be protected by a patent and by a trade secret. As obtaining a patent requires public disclosure while trade secrets must be kept confidential, businesses will have to choose - whether to patent the invention or to keep it a trade secret. Here are some reasons why trade secret protection might be preferred over patent protection, and visa versa:

Advantages of Trade Secret Protection

No time limit

Patent protection lasts for up to 20 years in general, whereas trade secret protection has no time limit and may continue indefinitely as long as it is not revealed to the public.

No registration

Patents must be registered, whereas trade secrets do not have to be registered. As such, trade secret protection would not incur any registration costs (which could be substantial for a young firm).

Immediate

Patent protection requires compliance with procedural formalities such as disclosure of the information to an IP authority while trade secret protection d Patent applications would take some time, whereas trade secrets have immediate effect.

Advantages of Patent Protection

Full trade protection

If the trade secret is embodied in a product, others can inspect, dissect and analyse it, or “reverse engineer” it and discover the trade secret. Trade secret protection of an invention in fact does not, in fact, provide the exclusive right to exclude third parties from making commercial use of it. Only patents and utility models can provide this type of protection.

No access with patent protection

Once the trade secret is made public, anyone may have access to it and use it at will.

Stronger protection

A trade secret is more difficult to enforce than a patent. The level of protection granted to trade secrets varies significantly from country to country but is generally considered weak, particularly when compared with the protection granted by a patent.

Sole owner

A trade secret may be patented by someone else who has developed the relevant information by legitimate means.

3. Registration

The registration of registrable IPR such as patents and trademarks is critical to ensure that the business holds the exclusive rights to use, licence or sell the IP. Without this, the business has no legal protection over its idea or product.

Generally, IPR should be registered as soon as possible. But please note that this general position might not hold true for Startups where the cost of registration might outweigh the potential benefits.

4. Renewal of IPR

The renewal of the terms for renewable IPR such as trademarks and domain names is also critical to ensure the continual ownership of IPR. Organisations should take note of when the renewal or end dates of their IPRs are, and take necessary steps to renew their IPRs if desired.

5. Ownership of the IPRs

Apart from the registration of the IPR, organisations can ensure they have a good title to use the IP in their business. This could include taking the following steps:

• Transfer of IP ownership from founders to the organisation at a consideration; and/or
• Ensuring your employment agreements provide for the transfer of IPR from your employees to your organisation.

6. Commercial Contracting

Where a commercial contract entered into by an organisation contemplates the transfer or use of IPR, both contracting parties would be well advised to clearly delineate the rights and obligations in relation to such use or transfer in the relevant commercial contract.

Things to Include in Commercial Contracts with regards to Intellectual Property Rights:

Employment contract:

Since employees may require the right to use a company’s IPR in order to carry out his/her duties, the employment agreement should specify the terms upon which such rights are granted to the employee.

Joint venture agreement:

Organisations should ensure that the ownership of IPR that is generated during the course of the joint venture is clearly delineated between the parties.

License Agreement:

A company may enter into a license agreement with third parties, to set out the terms upon which it grants such third parties the license to use its IPR.

7. Active Enforcement (e.g. Cease and Desist Letters)

IPRs (Intellectual Property Rights)  give you recourse to the law to prevent third-party infringement. But such rights are illusory unless an organisation takes active steps to enforce its rights.

Litigation is obviously 1 method of active enforcement – an organisation may bring a civil suit against the third-party infringer for compensation for infringing on its IPRs.

Apart from litigation, another commercially savvy way to deal with infringement is to send a cease and desist letter. This serves as a formal warning to the third party to stop their infringing activities and those further penalties could follow if the behaviour does not stop.

While the cease and desist letter has no independent legal effect, it fulfils the important function of putting the offender on notice. The offender will be stopped from claiming that he/she did not know of the infringement.

That said, organisations should take some caution in issuing a cease and desist notice. Issuing a cease and desist notice under the wrong circumstances can cause legal troubles for the sender. If there are threats involved in the letter, it can amount to extortion or blackmail.

In addition, if the allegation of violation turns out to be false, the party receiving the letter can sue for a declaratory judgment. This false allegation may even potentially serve as the basis for a defamation action against the sender.

Protecting Intellectual Property Across Borders

As a starting point, it must be noted that IPRs are generally territorial in nature. This means that IP protection generally does not extend beyond the particular country in which it was created/granted. There are, however, certain international treaties or regimes that facilitate the registration and enforcement of IPR on a multilateral level.

Accordingly, if you are looking to expand your business overseas and/or conduct online cross-border business, you will have to consider your IPR and enforceability in more than one jurisdiction.

Intellectual Property Risk

If your Startup is based on a novel idea or creation, you will want exclusive protection over that idea/creation to prevent other parties from benefiting from it illegitimately.

Intellectual property rights are designed to grant exclusive rights to creators over the use of their creations of their mind, typically for a certain timeframe. This helps you to maintain a competitive edge in today’s market as your ideas or creation cannot be legally replicated freely – ensuring that you are the sole owner of that novelty.

Intellectual Property on Websites

Businesses should be careful to ensure that they do not infringe upon the IP rights of third parties, when they publish content on their website. IP claims could, after all, potentially result in businesses being liable for large amounts of monetary damages.

In this regard, it would be prudent for businesses to ensure that they obtain all necessary licences and/or consents before publishing content/material on their websites.

To conclude, IPRs may be critical for a Startup to protect its exclusive rights in its IP. Having such exclusive rights allows a Startup to build a competitive advantage over its market rivals. In order to obtain and maintain such protection, Startups would need to undertake a host of steps, including ascertaining the most appropriate form of IP protection, as well as making the requisite applications for registration and renewal.

Startups may not have the knowledge and experience necessary to undertake these steps and obtain the protection that they need for their IP. On the other hand, IP lawyers may have such knowledge and experience and can help Startups to navigate these processes. 

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.