Why Startups Need Legal Advice When Expanding to New Countries

Legal compliance is one topic that usually escapes the notice of startup founders at first. Many founders still focus on launching their product or service as quickly as possible without worrying about the legal implications. The reality is, it’s important to seek legal advice at all stages of the business, especially when expanding to unfamiliar markets.

Aurora Nia is the founder of her own law firm – Aurora Nia Consulting – that specializes in helping technology and e-commerce businesses to set up in Indonesia. A longtime member of Greenhouse, she shares her story and insights about what it’s like to work as a lawyer in Indonesia’s startup scene.

Why do startups need legal advice?

Aurora’s company focuses on helping companies like venture capitalists (VCs) and tech-based startups to set up businesses in Indonesia, as well as advising them on day-to-day legal matters.

“Investing in Indonesia can be difficult sometimes, especially for foreigners. You need someone familiar with the dynamics of Indonesia,” Aurora explained, “For example, VCs are going to need help with assessing and deciding on investment opportunities.”

“It’s all pretty straightforward, actually, but it can be overwhelming to people who aren’t familiar with legal matters.”

As for startups, many teams – especially in the early stages – are still unfamiliar with regulations in countries where they operate. According to Aurora, most founders that she’s dealt with are technical-oriented people; they’re worried about compliance, but they prefer to focus on their own work.

“That’s why we help walk them through employment agreements, commercial agreements, and partnership agreements,” Aurora said.

What are some examples of business actions that need legal counsel?

In fast growth markets like Indonesia, there are a lot of legal gray areas and minute details that many founders – especially foreigners – usually aren’t familiar with. Here are some examples of when startups need to consider getting legal counsel.

Incorporation

From the moment they decide to enter a new market, startups need to understand the basics of the business incorporation process. In Indonesia, startups need to know how to comply with the foreign company (PT PMA) regulations, what documents they need to prepare, what government agencies they need to contact, and more.

Employment

Different countries almost certainly would have different employment laws, especially when it comes to hiring foreign workers. Startups planning to enter Indonesia need to consider the accepted ratio of foreign to domestic employees, the regional minimum wage, income taxes, and mandatory government insurance (BPJS).

Trademarking

If you’re going to spend time, energy, and resources to create the perfect brand, you also need to protect it. In Indonesia, the Directorate General of Intellectual Property of the Ministry of Human Rights handles brand and trademark filings. However, startups will need legal advice to guide them through the filing process.

Financing

When it comes to finances, founders will definitely need help with taxation. However, they also need to ensure compliance during fundraising, especially through VCs or seed investors. Legal counsel is necessary to ensure that investors and shareholders are clear on all their rights and obligations.

What are the challenges of legal compliance for startups?

The startup industry is rapidly evolving, and it can be challenging to keep up with the laws which regulate it. Governments in emerging markets, especially, are usually still adjusting themselves to the digital economy, which is why outdated regulations or complex bureaucratic processes are common.

For example, Indonesia’s Negative Investment List – the government regulation that outlines foreign ownership limits for selected business fields like e-commerce and telecommunications – has not been updated since 2016. While there were plans to revise it further in 2018, those plans have not been signed into law.

“That’s why we have to be ‘tech lawyers’ who know all about regulatory updates concerning technology.”

As Aurora said, many of her clients come from internet or technology backgrounds. Some of these people usually find it difficult to keep track of regulations. “It’s the law firm’s job to stay updated about technology trends and laws so we can give proper legal advice for them,” she explained.

This isn’t limited to regulations in target markets – in Aurora’s case, Indonesia – but the founders’ home countries too. Many startups who set up businesses in Indonesia come from Singapore or Europe; regions with very different technology and data regulations.

Tech founders from Europe, for example, usually legal advice to reconcile how the EU General Data Protection Regulation (GDPR) with conditions and regulations in Indonesia.

How can law firms build relationships with startups?

According to Aurora, it’s common for startup-oriented law firms and their clients to build lasting relationships. Indonesia’s startup community is relatively tight-knit, and it’s not uncommon for clients and service providers to come up with other forms of partnership.

In Aurora’s case, her law firm usually gets advice and recommendations from their clients as well. “We’re lawyers. We’re experts in legal matters, but we might need help with things like marketing and web design, for example,” she explained.

Aurora continued, “Often times, you don’t know where to go for things like this and you have to hire vendors you’re not familiar with. Here at Greenhouse, we can freely discuss with other members.”

One client – a marketing solution company – gave Aurora’s team some advice on communicating with clients and prospects. Another client – an education consulting company – gave her tips on navigating regulations in the Ministry of Education.

So, what’s the conclusion?

It’s important to have legal counsel if you’re a startup looking to enter new markets. But you should make sure that you choose firms that are used to handling startups and know your business field inside and out. From our experience, there are two ways you can do this.

First, you can network with possible partners. Greenhouse Cowork‘s office spaces and events give you access to our member community full of prospective partners and clients. Our member benefits can also give you exclusive perks and benefits with services like legal and accounting.

Second, you can connect directly with trusted service providers. Greenhouse Connect can empower you with a network of companies in target markets like Indonesia to help incorporate your business and provide other legal advice.

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