Doing Business

5 Legal Mistakes To Avoid When Incorporating Foreign Company in Singapore

Nora Setiawan

October 1, 2020

Doing Business

5 Legal Mistakes To Avoid When Incorporating Foreign Company in Singapore

Nora Setiawan

October 1, 2020

Singapore is already known for its ease of doing business, low-tax policies, and first-world infrastructure. Moreover, with the support from its government and availability of private funding, the city-state is also on its way to appear as Asia’s hub for incorporating a foreign company, especially in the areas of clean and green technology, media and entertainment, IT and electronics, and bio-technology.

According to the Global Financial Centres Index Survey 2013, Singapore is the world’s fourth-ranked financial centre in terms of competitiveness. The country has offered a wide range of products and services, such as banking, foreign exchange, bonds, equities, derivatives, asset management and insurance, also with private banking, risk, and wealth management as its future growth areas.

In addition, Singapore hosts some of the world’s leading names in insurance broking, offshore insurance, captive and risk management.

These reasons made foreign entrepreneurs decide to have a business in the country. However, starting a business sometimes comes with an inherent price. You may make legal mistakes as an entrepreneur, but you can avoid them if you know what to do. Somehow some mistakes are inevitable, and you actually can just learn from them and move on, while others mistake, you can plan properly and do your due diligence, and eventually, they can be avoided.

If you are planning to incorporate a foreign company in Singapore, you may know what are the common legal mistakes that you need to avoid. Thus, the article will focus on 5 legal mistakes to avoid when you incorporate a foreign company in this country!

5 Legal Mistakes To Avoid When Incorporating a Foreign Company

Legal mistakes to avoid when incorporating a foreign company in Singapore

These are some of the common legal mistakes made by small and growing companies. However, the mistakes are made at the basic formation of the business and normally in the early stages of growth when dealing with employees.

1. Not Making the Deal Clear with Co-Founders

If you start your business with co-founders, you should agree early on about the details of your business relationship. If you are not doing so, it can cause significant legal problems in the future. You also need to think of the founder’s agreement as a form of “prenuptial agreement.” 

Here are the key deal terms your written founder agreement needs to address:

  • How will the equity be split among the founders?
  • Is the percentage of each founder’s ownership in the company subject to vesting based on continued participation in the business?
  • What are the roles and responsibilities of the founders?
  • If one founder leaves, do the remaining founders of the company have the right to buy back the departing founder’s share? If so, you should know at what price.
  • What time commitment to the business is expected of each founder? What constraints will be imposed on outside commitments?
  • What salaries (if any) are the founders entitled to? How can that be changed?
  • How will key decisions and day-to-day decisions of the business be made? Will they be decided by majority vote, unanimous vote, or are certain decisions solely in the hands of the CEO?
  • Under what circumstances can a founder be removed as an employee of the business? Because this is usually a Board of Directors’ decision.
  • What assets or cash does each founder contribute to or invest in the business?
  • How will a sale of the business be decided?
  • What happens if one founder isn’t living up to expectations under the founder’s agreement?
  • What is the overall goal and vision for the business?

2. Choosing a Company Name That Has Trademark Issues, Domain Name Problems, or Other Issues.

When picking a company name, it is important to do research to help you avoid trademark infringement of domain name problems and to ensure that the name you choose is actually available to use. 

You may be infringing on someone’s trademark if you use a mark which is likely to cause confusion among the customers. There are some tips to take in order to avoid the issues:

  • Do a Google search on the name to see what other companies may already be using the same or a similar name.
  • Make sure the name is distinctive and memorable.
  • You might consider having your intellectual property lawyer do a professional trademark search.
  • Don’t make the name so limiting that you need to change once your business is expanded.

3. Not Having The Right Legal Counsel

In a misguided effort to save on expenses, the new businesses often hire inexperienced legal counsel, including lawyers who are friends or relatives. The founders deny themselves the advice of experienced legal counsel who can help avoid many legal problems.

However, the founders should consider interviewing several lawyers or law firms and determine, if the lawyers or the law firms have expertise in some.

It is not necessary that the lawyers or law firms retained by the founder have experience in all of the foregoing areas because certain problems can be out to the different lawyers or firms.

4. Not Maintaining Proper Corporate and HR Documentation

Companies are often poor in maintaining proper corporate and employee in the HR-related documentation. It can become problematic when the company pursues financings, or is involved in an M&A activity, or is involved in claims or litigation with an employee or regulatory agency.

Here are some of the types of documentation that you should consider maintaining carefully:

  • Board and shareholder resolutions and minutes
  • Signed contracts, including documentation reflecting any loans to or from founders or other company employees.
  • Stock and option records, including among other things, stock option plan documents, executed stock purchase and option agreements, proof of payment for stock sales, share and option grants.
  • Job applications and resumes
  • Employee offer letters
  • Employment agreements

5. Not Carefully Considering Intellectual property Issues

If you have developed a unique product, technology, or service, you need to consider the appropriate steps to protect the intellectual property you have developed. Both the company’s founders and its investors have a stake in ensuring that the company protects its intellectual property and avoids infringing the intellectual property rights of third parties.

Here are some of the common protective measures that you should consider:

  • Patents →  They are the best protection you can get for a new product. A patent gives its owner the right to prevent others from making, using, or selling the patented invention.
  • Copyrights → They cover original works of authorship, such as art, advertising copy, books, articles, music, movies, and software. A copyright gives the owner the exclusive right to make copies of the work.
  • Trademarks → They protect the symbolic value of a word, name, symbol, or device that the trademark owner uses to identify its good from those of others.

These are 5 legal mistakes that you should avoid when incorporating a foreign company in Singapore. You should pay attention before setting up a new business, and you don’t want to start all over again because you fall into one of the legal mistakes. It’s better to prepare everything upfront! If you need help to avoid mistakes when incorporating your company in Singapore, you can contact us anytime.

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