Harper James is a UK full-service commercial law firm advising ambitious businesses on the laws of England and Wales. For founders, an equity fundraising is both a financing exercise and a change to the company’s ownership, control and future obligations.
Start by deciding how much capital the business needs, what it will fund and how the investment affects the cap table. The main routes include issuing ordinary or preference shares, using an advance subscription agreement, or agreeing a convertible loan note. Founders should model dilution at the proposed valuation and under later funding scenarios. If SEIS or EIS eligibility matters, the company should address the relevant conditions early and consider applying to HMRC for advance assurance before presenting the opportunity to investors.
The term sheet should record the commercial agreement before detailed documents are prepared. It commonly covers valuation, investment amount, share class, investor consent rights, information rights, board representation, pre-emption rights, founder commitments and the intended timetable. A practical fundraising preparation resource can help founders organise these decisions and identify information needed for due diligence.
Investors usually review the company’s corporate records, cap table, material contracts, intellectual property ownership, employment arrangements, data protection processes, financial information and any disputes or regulatory issues. Missing share allotment filings, unsigned IP assignments or inconsistent option records can delay the round. A founder should create a due diligence folder, check that Companies House records match the company’s internal records and resolve known gaps before circulation.
The legal documents often include a subscription or investment agreement, shareholders’ agreement, amended articles of association, board minutes and shareholder resolutions. The documents should work together on matters such as new share allotments, reserved matters, transfers, drag-along and tag-along rights, liquidation preferences, anti-dilution provisions and information obligations. Any employee option scheme, including an EMI option scheme, should also be reflected accurately in the cap table and corporate records.
Completion is not the end of the legal work. The company must issue the shares correctly, update its register of members, make required Companies House filings and maintain records of investor rights. The board should also track consent thresholds, reporting dates and restrictions on future share issues. Founders should understand which decisions remain within the board’s authority and which require investor or shareholder approval.
A clean process gives investors reliable information and gives founders a clear view of the trade-offs. Before signing, review the effect of the investment on control, future dilution, cash runway and the company’s ability to raise further capital. The right structure depends on the company’s stage, investor expectations, tax objectives and growth plan, so the term sheet should be tested against those practical considerations rather than treated as a formality.