What Legal Support Do You Need When Raising Investment

Securing investment for your startup is an exhilarating yet challenging journey, one that can shape the trajectory of your business. However, amidst the excitement, it’s crucial to remember that the fundraising process isn’t just about pitching your business idea — it's about ensuring that you’re legally protected, compliant with regulations, and structuring the deal in a way that works for both you and your investors. That’s where legal support comes in.

Legal complexities, often hidden in plain sight, can impact a startup’s ability to secure investment or create future hurdles that are difficult to overcome. For this reason, having legal experts on your side isn’t a luxury; it’s a necessity. In this blog, we’ll break down the key legal considerations and documents you’ll need to understand when raising investment for your startup.

Understanding Startup Fundraising Investment Structures

Choosing how to structure your investment round is one of the most important legal decisions you’ll make — and increasingly, the lines between “early-stage” and “later-stage” funding structures are becoming less defined.

While traditional equity financing — where investors exchange capital for shares — remains a cornerstone of startup fundraising, many UK founders now start with Advanced Subscription Agreements (ASAs). These are pre-agreed equity instruments that convert into shares in a future round, typically at a discount. ASAs are especially favoured because, unlike SAFEs or Convertible Loan Notes, they are eligible for SEIS and EIS tax relief, which makes them far more attractive to UK investors.

What’s more, ASAs are no longer limited to pre-seed funding. Thanks to the growing adoption of agile fundraising, startups can raise capital incrementally — closing smaller cheques from investors over time rather than relying on large, one-off rounds. This reduces pressure, avoids long capital droughts, and provides greater flexibility to scale at a pace that suits your business.

Your legal needs will still evolve as your startup matures — especially around governance, investor rights, and employee equity — but the tools you use, like ASAs, can remain consistent across multiple stages. That said, ASAs are not without their risks — such as timing mismatches or disputes over valuation caps. For a deeper look into these risks, this blog from FounderCatalyst offers useful insight. The key is to ensure your legal documentation aligns with your fundraising strategy while preserving compliance and long-term scalability.

Regulatory and Compliance Requirements When Raising

Navigating the regulatory landscape is one of the trickiest aspects of fundraising, especially in the UK where various laws and bodies govern investment. Compliance ensures that your business operates transparently and legally, protecting both you and your investors.

UK Regulatory Bodies and Compliance Obligations

The Financial Conduct Authority (FCA) and Companies House are central to regulating investment in the UK. Startups must be fully compliant with regulations governing how investors are approached and how funds are handled. Failing to comply can delay or even derail your fundraising efforts, potentially leading to reputational damage or legal consequences.

GDPR Considerations

If your fundraising process involves collecting investor data (such as emails, financial details, etc.), you must ensure compliance with GDPR. Data protection laws are strict in the UK, and non-compliance can result in significant fines.

Term Sheets and Investor Agreements

A term sheet is a key document in any fundraising process. This document outlines the basic terms and conditions of the investment and serves as the blueprint for further negotiations and agreements. While term sheets are often non-binding, they provide an initial framework for what the final deal will look like.

Key clauses to pay attention to include:

• Valuation: Determines how much your company is worth at the time of investment
• Equity Stake: Specifies the percentage of equity the investor will receive in exchange for their funding
• Investor Rights: Investors may request certain rights, such as the ability to appoint board members or veto certain business decisions. It’s critical to understand these before agreeing to them

Key Legal Documents for UK Startups Raising SEIS/EIS Investment

When preparing for investment, you’ll need to produce and sign several legal documents that formalise the terms of the deal, protect all parties involved, and ensure compliance — especially if you’re seeking SEIS or EIS eligibility. Here’s what investors will expect to see:

Shareholders Agreement (SHA)

The SHA governs the ongoing relationship between all shareholders, including new investors. It outlines:

• Shareholder rights and obligations
• Rules around decision-making, board representation, and reserved matters
• Exit provisions such as drag-along and tag-along rights

When a new investor joins an existing SHA, they typically sign a Deed of Adherence — a short agreement that binds them to the terms of the SHA.

Share Subscription Agreement (SSA)

The SSA is the agreement through which new investors subscribe for shares in the company. It outlines the commercial terms of the investment, including:

• Number and class of shares to be issued
• Payment terms and timelines
• Warranties made by the company and the founders about the state of the business

The SSA is usually executed alongside a Shareholders’ Agreement (SHA), which sets out how the shareholders will interact going forward. Most UK investors will expect the SSA to follow the BVCA model templates, which provide a familiar and standardised structure.

Articles of Association

This document forms part of your company’s constitution and sets the rules by which your company is governed. It covers share classes, voting rights, transfer provisions, and more. These are usually updated during a funding round and must be compliant with SEIS/EIS rules — e.g. no redeemable shares or preference rights that breach HMRC guidance.

Founder Service Agreements

The Founder Service Agreement (also known as the Management Service Agreements) is the employment contract for each founder, setting out responsibilities, salary (if applicable), termination provisions, and restrictive covenants. Crucially, they also help clarify IP ownership and ensure that founders are formally tied to the business — often a requirement for SEIS/EIS qualification and investor confidence.

Disclosure Letter

Accompanying the SSA, a disclosure letter (which is not always necessary) qualifies the warranties given by founders. It outlines any exceptions or risks (e.g. pending disputes, IP issues, or tax liabilities) and serves to protect founders from post-investment claims. Investors will expect thorough and honest disclosures, often supported by annexes and evidence.

IP Assignment Agreements

To avoid ambiguity over who owns the business’s core assets, founders and early contributors must assign any pre-incorporation intellectual property to the company. This is especially important for tech, brand, or product-led startups where IP value underpins valuation.

Due Diligence Documentation

Before investing, most investors — even angels — will conduct due diligence to verify the business’s legal and financial position. Be prepared to provide:

• Certificate of incorporation and Companies House filings
• Cap table and historical share issuances
• Financial statements and tax returns
• Contracts with employees, advisors, and suppliers
• Details of any outstanding liabilities or legal risks
• Documentation of IP (e.g. trademarks, domain ownership)

Working with Legal Professionals

It’s tempting to go through fundraising without legal support, especially when you’re trying to save costs. However, legal pitfalls can be expensive to fix later on. Engaging a lawyer early on can save you significant time and money in the long run.

• Early-Stage Legal Consultations: Even if you’re not ready for full-scale legal services, an initial consultation can provide invaluable insights on how to structure your deal and avoid common pitfalls
• Full-Service Legal Support: As your fundraising round progresses, you may need more comprehensive legal support, especially if you’re dealing with complex investment structures

Choosing the Right Legal Partner for your Startup

When selecting a legal partner, you have several options:

• Independent Legal Advisors vs. In-House Teams: Depending on the complexity of the investment, you may need an external legal firm with experience in startup financing or an in-house legal team. But with complexity comes cost
• Cost-Effective Legal Support: Look for fixed-fee legal services or law firms that specialise in helping startups. These services are often more affordable and tailored to the needs of early-stage companies. Our partners at Harbottle & Lewis or FounderCatalyst can help here.

There are also several online legal platforms offering contract templates and other resources specifically designed for startups. Additionally, the UK government provides a range of initiatives and support for startups navigating the legal complexities of fundraising.

Next Steps

Legal support is essential when raising investment. Not only does it help ensure compliance, but it also structures the deal in a way that protects your interests and fosters trust with investors. Whether you’re negotiating the terms of your investment, preparing for due diligence, or structuring your shareholder agreements, working with legal professionals will ensure your startup is well-positioned for success.

The risks of proceeding without legal guidance can be significant — potentially jeopardising both your business and your relationships with investors. By taking the time to get your legal affairs in order, you can focus on scaling your business and navigating the fundraising landscape with confidence.

References and Resources

1. Model Documents For Early Stage Investments | British Private Equity & Venture Capital Association (BVCA) - tps://www.bvca.co.uk/policy/industry-guidance-standardised-documents/model-documents-for-early-stage-investments.html