Most local business owners are not doing enough to mitigate legal risks – find out more about the most common legal mistakes and how to avoid them.

Many business owners in Asia tend to neglect legal risks when it comes to operating their companies – mostly due to superstition or plain oversight.

Unfortunately, legal issues may be the very last straw that takes your business down. To prevent this from happening, we’ve gathered a list of the most frequent legal flops made by small business owners and how you can avoid them.

1. Not incorporating the company

Businesses in Singapore have three common structures: sole-proprietorship, partnership and incorporated company.

Many business owners fail to establish the right business structure for their company, which can open them up for personal liability. Even the smallest business can benefit from early incorporation as this protects your personal assets against creditors, as well as your company name and intellectual property ownership, and more.

Choosing the right business structure means understanding the benefits and drawbacks of all of them. Consult a lawyer who will take your long-term goals into account before making the decision.

To incorporate your business, you must submit an application online via Accounting and Corporate Regulatory Authority (ACRA)’s electronic filing system, BizFile.

2. Not having a shareholders agreement

Before incorporating a company, you should have a shareholders agreement in place. A shareholders agreement is a legal document that creates a contractual obligation between shareholders of a company, and more importantly, it will provide a guide in cases where a founder leaves, or if it’s time to sell your company – without it, chaos may ensue.

A well-written agreement covers issues like how the company is structured, everyday operations, as well as remuneration for the directors. It will also make sure everyone is on the same page, minimise unnecessary disputes, and protect the rights of all shareholders. 

3. Working with clients or vendors without a contract in place

Always protect yourself by using a contract. Develop a set of standard contract templates that you can adjust to fit the situations your business is likely to encounter – an experienced lawyer can help you to create these contracts and review those that you may have questions about.

When hiring an independent vendor or freelancer, make sure the contract includes a clause that ensures your company retains the rights to their work.