Introduction
While deciding Singapore as place of business, it is important to understand the social, business and economic environment of Singapore. Generally, the first step to enter Singapore market (jurisdiction) is to register the business in Singapore, or, in other words, incorporating the company in Singapore.
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Although incorporating company is the most preferred option among international business owners, entrepreneurs, startups and investors, sometimes it might be sensible to buy an existing business or an existing company in Singapore.
Similarly, many businesses and companies in Singapore are always looking forward to sell their businesses and companies to potential buyers.
Important Legal Documents
During mergers and acquisitions (M&A transactions) of Singapore companies, it is highly advisable to hire competent professionals, including, lawyers, accountants, company secretary, brokers etc.
Term Sheet – Letter of Intent (LoI)
Going by definition, a term sheet is an introductory level document that outlines legal and financial terms of investment. Among various provisions of a terms sheet, crucial ones include, amount of investment, voting rights, liquidation preferences, valuation of company (pre-money valuation and post-money valuation), anti-dilution and protective rights, right of first refusal, employee pool, dividends, drag along, vesting, founder activities, no shop agreement, and the like.
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From legal perspective, the term sheet is non-binding. In essence, the terms sheet is a disclosure of important terms and conditions in accordance to which a venture capitalist (VC) or an angel investor makes an investment in a company or in a business.
Accordingly, entrepreneurs, startups, business owners and investors employ the term sheet as a tool to form framework for discussion and negotiations. Subsequently, once all details according to term sheet are finalized, a legally binding shareholder agreement is drafted to formally define all clauses pertaining to the investment transaction.
How to Negotiate A Term Sheet – Term Sheet Negotiations
Negotiating a term sheet can be a challenging task that involves multiple pitfalls. While specific points are fact specific with regards to an investment transaction, a general approach may include focusing on crucial points like amount of investment and the price. Generally, startups and entrepreneurs miss on the crucial part of initial due diligence and end up executing the term sheet in haste. Subsequently, at later stages, when they discuss the formal shareholding agreement with a lawyer, they realize the actual importance of term sheet. Therefore, it is advisable to negotiate all the clauses before signing the term sheet.
NDA – Non-disclosure Agreements – Confidentiality Agreements
Non-disclosure Agreements are an absolutely important document to protect the interest of both buyers and sellers while executing transactions pertaining to buying and selling of companies or a business. NDA can form the backbone of such transactions, such as, for example, but not limited to, protecting initial level discussion from public disclosure can avoid possible issues with clients as clients may become apprehensive to know about potential mergers & acquisitions (M&A) talks during early stages. Similarly, while parties are performing initial due diligence, the NDA can protect important documents (account books, trade secrets, upcoming marketing material etc.) from reaching outside parties.
As obvious, all agreements including the NDA shall be executed only after thorough understanding of all clauses contained therein.
Conclusion
This above list of important legal documents is just illustrative and each party will require comprehensive set of legal documents, agreement and contracts while buying and selling a business in Singapore. Please note this list is illustrative and exact set of documents can vary for each transaction. Accordingly, this is not legal advice and present disclosure is published for informational purposes only.
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