Izwan & Partners: Why Early Stage Founders Need The Right Legal Service

Jan 17, 2022

Welcome back to an all-new issue of Head’s Up. We speak to Izwan Zakaria, Founder and Managing Partner of Izwan & Partners on the importance of early stage founders getting the right legal service, how the right help can help businesses avoid crisis and whether founders should either get external legal aid or an in-house lawyer.

He is also the author of The Startup Law Blog, a website covering legal topics and trends affecting technology entrepreneurs and startups in Malaysia.

But just before you go on to read our piece with him, here are some news and announcements. And till our next issue, stay safe and stay healthy!

News & Announcements

MSC Malaysia Has Been Rebranded Into Malaysia Digital

The Digital Economy Week at Expo 2020 Dubai marked the soft launch of Malaysia Digital, the enhanced and revamped programme succeeding the MSC Malaysia, which has been in operation for 25 years. The new and enhanced initiative will serve to accelerate Malaysia’s digital economy and create substantial digital economic spill-over through equitable access to digital tools, knowledge, and income opportunities.

Malaysia Digital is also set to enhance Malaysia’s value proposition to attract digital investments through a new framework centred on three primary components: Agility, Flexibility, and Relevance.

Under the Malaysia Digital initiative, the Government and MDEC will also be introducing two initial catalytic projects, namely DE Rantau and Malaysia Digital Trade.

DE Rantau is a programme with the goal to establish Malaysia as the preferred Digital Nomad Hub in a bid to boost digital adoption and to promote digital professional mobility and tourism across the country.

Malaysia Digital Trade, on the other hand, is one of the catalytic initiatives under Malaysia Digital to capitalise on the immense opportunities in digitalisation that has been accelerated by the recent COVID-19 pandemic. The Malaysia Digital Trade initiative will drive interoperability and greater harmonisation of standards and regulatory approaches as well as to facilitate trade within and across borders.

13 MoUs Drive Digital Economy Forward

Malaysia can enhance collaborations towards increased adoption of high technology and innovation, smart manufacturing, and all matters integral to the Fourth Industrial Revolution (IR 4.0), Communications and Multimedia Minister Tan Sri Annuar Musa (pic) said.

The signing of 13 Memorandums of Understanding (MoUs) between Malaysian companies and their international tech counterparts would allow Malaysian companies to expand their global footprints, and bring about a collaborative transfer of technology and knowledge that will strengthen Malaysia’s digital technology ecosystem, he added.

“With the Malaysia Digital Economy Corporation (MDEC), the Government of Malaysia will continue to drive the digital economy forward towards making Malaysia a globally competitive digital nation, anchored on innovation, sustainability and shared prosperity, and firmly establishing the country as the digital hub of Asean (the Association of South East Asian Nations).”

Grayscale Technologies and Accubits Enter Joint Venture To Empower Businesses With Digital Solutions for Industry 4.0

Grayscale Technologies Enters Into A Joint Venture Agreement (JV Agreement) With Accubits Technologies Private Limited.

As part of Grayscale Technologies’ mission to fuse intelligent technology and innovation into traditional industrial and business processes, the JV Agreement will strengthen TechnoDex’s information technology service offerings, reinforcing their commitment to empower and enable Industry 4.0.

The MoU exchange ceremony was held at the Malaysian Pavilion, Dubai Expo on 12 January 2022 in Dubai, United Arab Emirates where the documents were exchanged between Tan Sze Chong, Director of TechnoDex and Shameer Thaha, Chief Strategist Officer of Accubits Technologies. The exchange was witnessed by Tan Sri Datuk Seri TPr Panglima Haji Annuar bin Musa, Minister of Communications and Multimedia of Malaysia and Mahadhir Aziz, Chief Executive Officer of the Malaysia Digital Economy Corporation (MDEC). Also present at the ceremony was the Chairman of TechnoDex, YTM Dato' Seri Diraja Tan Sri Tengku Abdul Hamid Thani.

Interview with Izwan Zakaria

Ever wondered if you needed to seek out legal help before or while you are starting a business. For many, it may be daunting, and others may only see it as a necessity during a crisis.

Izwan Zakaria, Founder and Managing Partner of Izwan & Partners shares his thoughts with us on the importance of getting the right legal service early on, how the right help can help businesses avoid crisis and whether business owners should either get external legal aid or an in-house lawyer.

“As a founder, you should get a lawyer onboard as soon as you decide to start a business. I know hiring a lawyer sound intimidating, challenging and can be a confusing exercise. But if you’re an entrepreneur or a business owner, hiring a lawyer is pretty normal especially when you are trying to make sure a deal goes through smoothly,” he says.

He shares that a startup lawyer can give an overview of the legal and compliance matters that the entrepreneur should know before starting a business especially if you are involved in a regulated business-like financial service, logistics and so on.

Legal counsel, he says, can also highlight the crucial duties and obligations of a director of the company and the rights as a shareholder in the company when it comes to the decision-making process moving forward. For instance, as a director, you are responsible to make business decisions in the best interest of the company and to disclose any conflict of interest that you may have in the company.

“If you are planning to hire people in the future, the legal counsel would also highlight what fiduciary duties of an employer are.

“Another reason to get a lawyer is when you are planning to sign a deal with someone. Whether or not the company is onboarding a new co-founder or an adviser or a customer, there is a new legal relationship that will be formed. In other words, there should be a formal agreement in place that sets out the roles and duties arising from the relationship,” Izwan tells Head’s Up.

He further adds that in his experience, a deal made based on a “gentleman’s agreement” is usually a precursor to a potential disaster down the road. In a lot of cases, a founder may have a verbal agreement instead of having a written agreement in place. As a result, if there is a dispute between the parties, things are bound to get complicated due to the lack of paperwork in place.

Therefore, a legal counsel can help the founder pinpoint key legal areas such as ownership of intellectual property assets to liabilities that can reduce the potential legal risks and liabilities that may arise from a relationship.

Advantages and Long-Term Benefits

“Many first-time founders get overwhelmed when starting their entrepreneurial journey. If you’re starting out without a good set of advisers or mentor, having an external legal advisor can help you get aligned in terms of priorities especially if the founder is setting a new startup that may be in a regulated space such a fintech business,” he says.

An experienced startup lawyer will also be able to share their actual experience in dealing with similar scenarios from their past dealings and share the dos and don’ts including the best way forward when it comes to dealing with the regulations.

In terms of long-term benefits, Izwan says most disputes involved in startups are caused by mismatch of expectations between parties. He points out that startups in their early years may take a “frugal” mindset by taking many shortcuts which lead to disputes later – the usual scenarios include unclear or ambiguous contracts, unreasonable promises made to investors, flawed cap tables and shares allocations, related party transactions, misuse of company resources, and the list goes so on.

A legal counsel can and will help to ensure that founders manage potential downside risks in the future. Sometimes it is just about having someone that you trust that can pick up the phone and talk to, without any filters and share openly about your issues is important.

In-house or External Legal Counsel?

An in-house lawyer is a full-time person that works in a company that helps on a day-to-day legal work for the business. In other words, it’s like having a full-time employee dedicated to addressing legal matters in the company.

On the other hand, an external legal counsel is usually outsourced from an existing law firm that may specialise in certain areas such as technology and startup practice that may help with a business’ daily legal needs.

“In practice, most bootstrapped startups in their early life cycle may not need a full-time lawyer in their payroll. The usual exception is when the startup is involved in recurring or voluminous legal needs such as constantly having to negotiate on bespoke or customised customers contracts that may need constant legal attention.

“To summarise, a startup may continue without having an in-house lawyer for the first few years until perhaps the startup has received institutional funding or unless there is an actual need like recurring legal work to a point that it may make more sense to hire someone full time as opposed to sticking to the adhoc basis or even the retainer fees arrangements,” Izwan highlights.

A Founder’s Concerns

“There’s this funny saying that hiring a lawyer is like buying an insurance policy. Akin to having a good policy, the premium paid is worth for a peace of mind and in case anything goes wrong. It will only cost you a fraction to have a lawyer engaged as opposed to multiple lawsuits or millions from a big accident.

“It may be hard to see the value creation by having a lawyer involved as legal advice is usually intangible, and its benefits are most often only apparent after many years. Fortunately, in the past couple of years, after we started Izwan & Partners focusing in this technology and startup space, it is encouraging to see more and more new boutique corporate law firms being formed focusing on these untapped segments,” Izwan says.

That said, Izwan also acknowledges that more and more founders are seeing the importance of investing in good quality legal advice to create robust entities for their business. In his experience, investors may also be willing to pay a premium for better investors and attractive valuations.

Izwan & Partners strongly recommends that founders ask around for referrals and speak to as many law firms as possible before deciding on a legal counsel that understand their business and issues.

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