Ashick Remetula, Associate at law firm Morais Leitão in Lisbon, specialized in banking and finance: « If the terms and conditions are not well drafted within a startup from the starting point, that may cause some problems when they start growing».
Hi Ashick, could you, please, present yourself?
— So I was born and raised in Portugal, my academic background is business and also law. While studying I launched a business in export-import. But after I finished the course, I decided that I wanted to do my career as a lawyer. And I took the bar and now I’m practicing law for some years now. Since 2023 work at Morais Leitão firm, dealing mainly with fintech companies. Morais Leitão is a biggest law firm in Portugal with branches in Angola, Singapore, Mozambique, Cabo Verde with around 400 employees.
What exact help do you provide to startups?
— We provide full-service legal advice to companies that are overpassed the stage O and are growing. They come to us with questions how to spread the roles legally between founders, how to deal with investors, how to extend their business to another countries, etc. Our main clients are foreign companies that are in touch with Portugal somehow.
Nice. So, could you please tell me what are the most common problems that startup founders face when they are trying to create investment contract and how they would manage risks to ensure, that investor and founder are protected?
— So, I would say that one of the obvious problem is not very well drafted terms and conditions, because startups don’t usually engage with legal experts from the beginning, and that may cause some problems later on when they start growing. Because many times the terms and conditions are vague or are poorly defined and may lead to unclarity on the wording of a document that in the end of the day it’s a legal document. So a good advice would be to engage from the moment zero with the legal counsel and not with your cousin who is a lawyer, etc. There are also equity dilution issues sometimes, because founders without the proper advice may agree to terms that significantly dilute their ownership stake in future financing routes. So, to negotiate anti-dilution provisions and consider the impacts of each investment on the envisioned and overall equity structure is something that should be done also.
Could you give the example of questions that a startup with a product in Payment Services should consider?
— The founders must be sure that they fall under the scope of the Payment Service Directive and need to be sure be properly licensed, or if not, to be sure that they do fall under the exclusion or one of the exclusions, and they are not regulated. Simple things like this or maybe another thing, one thing that’s very important, it’s the bylaws of the company. So many startups just go to incorporate a company fast and with a template, but we know that the templates don’t usually address every issue that the founders have and that’s those articles of association of those bylaws must be properly drafted. Basic things that need to be addressed. So, am I licensed? Am I regulated or not? Which market am I acting on?
What are the most basics questions that founders of a startup should think about?
— I would suggest firstly to set up the Founders Agreement: That’s basically a legal document drafted in a detailed way, outlining the roles, the equity distribution, the vesting schedules, the decision-making processes, and conflict resolution mechanisms. So, a proper founders agreement, it’s a huge step in ensuring that we will not have entropies in the long run. The Bylaws, Articles of Incorporation are also very important, a Shareholders Agreement, obviously, maybe an Investment Rights Agreement to provide investors with certain rights and protections, then obviously startups start having at some point employee stock option plans and safes as well with investors.