Harper James is a UK full-service commercial law firm advising ambitious businesses under the laws of England and Wales. Equity finance gives a growing company capital in exchange for shares, rather than creating a repayment obligation like a loan. It can fund hiring, product development, market expansion or acquisitions, but it also dilutes existing shareholders and introduces new governance expectations.
A funding round usually starts with a term sheet covering valuation, the investment amount, the class of shares, investor rights and the proposed completion timetable. Investors may subscribe for ordinary shares, preference shares or use an advance subscription agreement that converts into shares later. The structure must fit the company’s cap table, articles of association and shareholder agreement.
For UK start-ups, SEIS and EIS eligibility often affects how an investment is structured and documented. The company must meet the relevant statutory conditions, and investors will expect accurate records and appropriate advance assurance or compliance work where applicable. A practical overview of equity fundraising structures and documents is useful when preparing the first funding plan.
Due diligence normally covers corporate records, ownership of intellectual property, customer and supplier contracts, employment arrangements, data protection, financial information and disputes. The company should organise its statutory books, Companies House filings, cap table, key contracts and IP assignments before approaching investors. Missing documents create delay and can lead to warranties, indemnities or specific conditions in the investment agreement.
Current fundraising practice places close attention on valuation discipline, investor consent rights and future dilution. Founders should model the effect of the new shares, any employee option pool, liquidation preferences and later funding rounds. The investment agreement and amended articles should also address board appointments, reserved matters, information rights, transfers and exit arrangements.
First, agree the funding objective and the amount required. Next, produce a reliable cap table and identify any historic share issues or undocumented promises. Then prepare the term sheet, carry out legal and financial due diligence, negotiate the subscription agreement and shareholder documents, and complete the Companies House filings and statutory records. After completion, the board should maintain an updated cap table and calendar all investor reporting and consent obligations. This preparation gives founders a clearer view of control, dilution, timing and legal spend before they commit to the round.