This article is part of Asia Law Network’s partnership with Tech in Asia where we publish articles written by lawyers on their advice for startup founders.
For a successful startup journey, it’s crucial to get the foundation right, especially in the ideation and seed stages. If you’re starting a startup in Singapore, here are some legal considerations to make your journey an informed one.
Gestation (ideation) stage
Your idea is coming together, and you are excited about the possibilities. But turning possibilities into a real thing involves risk and requires resources. This is where startup founders must be confident in:
- Having a product that is going to excite not just their target consumers but also potential investors
- Having the “freedom to operate”
- Having the rights to the product in order to have a competitive advantage
Patent landscaping exercise
Competitor analysis, market research, consumer needs analysis, business plans, and brand strategies are important at this stage. You must carry out careful analysis and planning to make your product as “marketable” as possible.
For tech startups, work with intellectual property (IP) lawyers to undertake a patent landscaping exercise. The patent data from this exercise will provide a good understanding of the players in your space and its white spaces (i.e. places with little patent activity).
Developing technology with this in mind will help you convince potential investors of the value of the idea and the possibility of a strong exit or IPO.
Freedom to operate (FTO)
Make sure that nobody else has any rights to the product, intended design, or brand.
For tech startups, establish FTO by conducting thorough patent searches. If you can, seek the help of an IP lawyer, providing as much information as possible on the functions of the product.
Lawyers are governed by law to keep a client’s confidential information. Therefore, there is no need for a non-disclosure agreement (NDA).
Rights to acquire for a competitive advantage
Legal/IP rights to a product not only give startups a competitive advantage but also add value to the startup.
Identify the IP or potential IP in your business and protect them. Trade marks protect brand elements used to market your product, patents protect the function of your product, and registered design rights protect the aesthetics of your product.
For tech startups, acquiring patents are essential not just for exclusive rights but also because patents (from a public relations view) convince interested parties that you are an innovative technology company worth investing in.
Data is very valuable IP. If your product will lead to the accumulation of data, this should be protected through policies and actions as early as possible. Identify information that will be confidential (trade secrets) and be ready to treat such information accordingly.
Seed stage
Your business entity should be set up at this point. Weigh the advantages and disadvantages of the many business entity types available in Singapore (sole proprietorship, partnership, limited liability partnership, and limited partnership company). All things considered, I think the best option in Singapore would be the private limited company vehicle.
Locate yourself within the startup communities in Singapore; Fusionopolis, Block 71, etc. should be given serious consideration. The Singapore government has invested and continues to invest in its startup ecosystem, so locating yourself within will give you access to ideas and information. You might also find some of the outsource contractors you’ll need for your product development within the community.
Startup laws in Singapore
Generally, Singapore laws governing business transactions support parties’ freedom to agree on terms of a contract. However, as in all countries, Singapore does have specific laws, regulations, and policies that affect all businesses. As such, make sure that you comply with Singapore’s labor laws, taxation regimes, personal data protection laws, competition laws, and consumer protection laws, among others. If your startup consists of foreigners, be aware of the relevant immigration laws and current policies.
Singapore’s IP laws are ranked one of the highest in international standards. Tech startups should also understand Singapore’s Electronic Transaction Act and Computer Misuse and Cybersecurity Act. For fintech startups, the Monetary Authority of Singapore’s (MAS) guidelines and policies are important to review.
Stay organised
Internally, ensure as much corporate governance as possible. Make sure your company secretary is experienced in corporate secretarial matters, and keep him/her updated on actions taken by the company, as there may be a need to pass shareholders’ or directors’ resolutions.
If more companies are set up, try to keep the same company secretary. This way, preparing and signing intra-company share purchase agreements, preemption notices, share transfer forms, and other requirements will be seamless.
For tech startups, the lab notebook is essential. Whether kept on paper or digitally, ensure that a good record of all experiments and results are maintained. Include and describe the company’s sources of inspiration and prior art. Many patent cases and other IP infringement or theft cases have been won on the basis of well-kept lab notebooks.
Use government grants and arrange your agreements
Know the various forms of government assistance available for startups and businesses in general. Spring Singapore (via Startup SG) partners with private companies to support startups with mentorship, capital grants, and accredited mentor partners. Tech startups can obtain proof-of-concept and proof-of-value funding which are paid out at each milestones or successful commercialization. The government also offers co-investment into deep tech startups.
If you have a patentable product, file for patent protection as soon as possible before any public disclosure. NDAs should be entered into with third parties, including investors.
Ensure that the following agreements are in place (where relevant):
- Founder’s agreement
- IP assignment agreement
- Shareholder agreement
- Investment agreement
- Contractor agreement
- Convertible loan agreement
- Introducer (funding) agreement
Growth and maturity stage
At this stage, you will most likely need more investors and customers. But series A, B, and C investors are more likely to invest when it is clear that your startup is meeting its commercialization milestones, IP policies are strong and dynamic, and corporate governance is in good shape.
Take some time to review your IP protection. If you haven’t already done so, undertake an IP strategy to ensure that your startup is creating the right IP. Ownership of the IP should also be reviewed. And if your business is now available in other countries, check that your IP protection extends there too.
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Give your startup the best chance by reducing shortcuts (no matter how difficult it may seem). Resist the urge to use template agreements or draft your own agreements and patents, particularly if you are not skilled in the area. In my experience, these mistakes are costly and come back to bite you when it matters most. I wish you success in your startup journey!
Looking for business advice?
If you have any questions about setting up a business, you can request a quote with Renee Xavier. Alternatively, you can get a Quick Consult with one of the practicing lawyers on our platform. With Quick Consult, you can check out in minutes and for a transparent, flat fee, the lawyers will call you back on the phone within 1-2 days to answer your questions and give you legal advice.
This article is written by Renee Xavier from Alpha & Omega.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.
