You need to come up with a business model, write a business plan, design your sales and marketing strategies, hire people, make good use of your assets as well as look for funding to finance your startup. All of these require your careful analysis and attention since they all bring along different types of risks, including legal risk.
Many entrepreneurs do not realise the importance of having a strong legal foundation for their startup until it is too late. They fail to appreciate that launching a startup is as much about the structure as it is the product or service. Entrepreneurs who seek legal advice at the early stage of their business enjoy the benefit of avoiding any unnecessary legal pitfalls.
It is very important for the entrepreneurs to make sure that they do not breach their duties to their previous employers when starting their own companies. Such post-employment duties are usually found in the form of assignment of intellectual property (IP), confidentiality obligation, non-compete and non-solicitation covenants.
Sole proprietorships/conventional partnerships enjoy flexibility in administration as in there is no issuance of shares, no formal requirement to submit financial statements to the Companies Commission of Malaysia (CCM) and no need to hold Annual General Meetings.
However, sole proprietorships/conventional partnerships do not enjoy the benefit of limited liability like what a private limited company would enjoy. The owners of a private limited company will only be liable for the company’s debts up to the amount of their shareholder investments, except in cases where they are found to be personally liable by law, such as fraud or breach of directors’ fiduciary duties.
The LLP is a hybrid between conventional partnership and company whereby the partners enjoy both flexibilities in terms of administration and the limited liability status. However, if you hope to attract investors, a private limited company might be a better structure.
Depending on the location and nature of your startup, there may be federal, state and/or local licensing and permit requirements that you must follow before launching your startup.
The agreement should address each party’s role, duties and obligations in the startup, how profit and equity will be divided, the voting process, board composition, how the shares will be broken down and at what price the shares will be sold if a founder leaves, how the startup can be dissolved, etc.
Whether you are bringing in an investment or hiring an employee or developer, it is important to have a written agreement in place at the outset to avoid disputes in the future (Remember the movie “The Social Network”)? Some startups issue shares to key personnel under a share option scheme to incentivize them to work towards the success of the business. This should also be properly documented.
The company name must contain the word “Sendirian” or “Sdn.” and “Berhad” or “Bhd.” For LLP, the name must end with the words “Perkongsian Liabiliti Terhad” or “PLT”. The company/partnership name must not be the same as any other company/partnership in Malaysia. The law prohibits or regulates the use of certain terms in company/partnership names. Please refer to the “Guidelines for Naming a Company” issued by the CCM for more details.
As for brand name (trademark) and domain name, you should carry out screening searches to make sure the brand name and domain name are registrable and are not identical or closely similar to another brand name and domain name that belong to another party.
Make sure that you own the copyright on the website (including the source code) and retain full control and freedom over the website. You should also make sure that you get a warranty from your developer that their work product does not infringe other’s intellectual property rights and an indemnity to compensate you for any costs and liabilities resulting from the breach of this warranty.
Developing and launching a startup can be both exciting and overwhelming. While it might seem like a daunting task, getting the legal foundation right in the beginning stages will save you from unnecessary headaches and allow you to focus on the more important things in your startup.