You find the investors, we'll help you take care of the rest.
1: Add your Company Details, build your team
Welcome to SeedLegals! We’re here to help you dramatically reduce the cost and time of doing a funding round, building your team and growing your business.
The first step is to create your Company Page. When team members and investors log in to sign documents that you’ve created for them, they’ll see those documents waiting for them there.
So make your Company Page pretty, add your logo and make it feel like home. Then, add your co-founders, team members, shareholders and potential investors as needed under Users & Roles.
Your documents are completely private to your company, securely hosted on our servers. Your documents are 100% yours and 100% private. Nothing is shared with anyone outside your team unless you choose to do so.
2: Have key team members sign an IP Assignment
Has everyone who worked on your idea signed a non-disclosure agreement? Have they signed over all intellectual property in the idea to the company?
Without a robust IP assignment in place your co-founder, developer or designer could walk away and claim that the idea or IP was theirs. Not only will you have a major legal issue to sort out but the entire company and project could be put on hold.
So think about every person who worked on the project who has not already signed over their IP in the project to your company. Then, create an IP Assignment agreement for them and get them to sign it, right now. Don’t wait, get everyone to sign an NDA and IP assignment the moment they start work on your idea. Get investment ready by doing those IP assignments now, your investors are going to be checking it's been done.
3: Get the founders to sign a Founders Agreement
Investors will expect founders to have a signed Founders Agreement with the company saying that, in return for the investor putting money into the company, the individual will focus all their energy on the company, not join a competitor, not draw a salary unless agreed with the investors, not poach the team and form a new company, etc.
Having a Founders Agreement in place for each founder will be essential to completing your investor due diligence, so all founders should complete a Founders Agreement now. Our Founders Agreement includes IP Assignment and non-disclosure protections as well, so you'll be covered on that too.
4: Ensure all team members have signed Employment or Consultancy Agreements
We’re often surprised to see a founder assembling a crack team of people to build the dream, but without any contracts in place. That’s a huge risk, it allows for disputes over code, intellectual property and share ownership that could kill the company.
Having an Employment or Consulting Agreement in place with each team member is essential to not just completing your investor due diligence when it comes to funding time, but right from the start to protect the company and the rest of the team.
With SeedLegals it takes moments to create employment agreements (for your permanent team members) or consultancy agreements (for contractors) and get them e-signed right here on the SeedLegals platform. Don’t leave your company at risk, take care of those right now.
5: Get investment ready by starting on your Due Diligence checklist
Before an investor will agree to invest in your company they’re going to want to conduct their own due diligence into the company. Have the founders and team all signed agreements with the company? Are there any outstanding debts? Who are the other shareholders? And a whole lot more.
SeedLegals helps make your Due Diligence easier and less stressful:
Firstly, use the Due Diligence Checklist to get knowledgeable now on the things that investors will be looking for. Start adding information into your due diligence checklist right now so you'll know which things to look out for later.
Secondly, many of the due diligence questions investors will be asking are the things you’ll have taken care of with the SeedLegals platform. Where you need to provide copies of team agreements, a list of shareholders, your NDAs and IP Assignments, etc., if you’ve used SeedLegals to create those documents they’re all right here!
One thing to note is that investors will sometimes send you their own Due Diligence questionnaire and expect you to complete theirs. Your goal is to get ahead of the curve, complete your Due Diligence Checklist first, and then suggest to your investors to save yourselves both a lot of trouble and use yours instead.
Our suggestion is to at least have a scan through the Due Diligence Checklist now so you know the amount of time you’ll need to allocate to this when closing your funding round.
6: If relevant, send an Investor Disclaimer letter to prospective investors
The UK’s FCA requires that anyone promoting an investment should send an Investor Disclaimer to each investor notifying them of the risks of such investments.
That generally applies to companies soliciting investment publicly, but if you think this applies to you, you’ll want each personal investor to sign a document confirming that they are an Everyday, Sophisticated or High Net Worth Individual investor.
Most friends, family and angel investors will meet the Everyday Investor test, which is that in the past and next 12 months no more than 10% of their net assets are or will be in unlisted shares and securities
The Everyday Investor letter is a simple 1-page document that the investor can e-sign on SeedLegals, and will be appropriate for most early-stage investments.
For larger investments where the investment may be over the investor's 10% net asset limit, you should instead ask them to sign a Sophisticated Investor or High Net Worth Individual Certificate.
If you can't decide which is the most appropriate document for that investor, you might want to start by sending them the Everyday Investor letter, and asking them to let you know if they require the Sophisticated or High Net Worth Individual Certificate instead.
7: Build your Cap Table, add shareholders and investors
Your Capitalization Table ("Cap Table") is the register of your shareholders and the shares they own.
Share classes and their associated rights can get horribly complicated, and between the many changes that get made during deal negotiation and the changes over multiple funding rounds, it quickly becomes an out-of-control monster. If you lose control of who owns what in your company you’re not going to be able to do a funding round or sell your company until that’s sorted.
That’s where the SeedLegals comes in.
Building your cap table here in SeedLegals allows you to even give your shareholders view access if you like. Then, each time you create documents that list shares and shareholder details, SeedLegals will automatically prefill that information for you, saving a huge amount of time and ensuring information is 100% consistent across all documents.
And for some fun, try the Exit Scenario Modelling to see how much everyone is worth at different company valuations.
8: Check whether you qualify for SEIS/EIS and apply for Advance Assurance to HMRC
The SEIS and EIS tax relief schemes fuel the UK startup economy, and most UK high-net worth investors will be looking to claim back tax relief in return for making an investment into your company.
Applying for Advance Assurance is the first step in the process, and will provide you with a HMRC approved letter to show investors when conversations begin. Given that HMRC can take up to a month to get back to you, it's important that Advance Assurance is applied for well ahead of your round.
9: Create your Term Sheet and negotiate key deal terms
The Term Sheet specifies the most important deal terms (company valuation, number of shares offered, equity split, etc.) of a funding round. The idea is to quickly reach agreement on these deal terms with your investors and only then move onto the more detailed Shareholder Agreement and Articles of Association (the “long form agreements”).
SeedLegals transforms the Term Sheet negotiation process. Instead of endless emails swapping Word documents, SeedLegals helps you quickly agree on key deal terms. If you need to change a term simply update that field and the Term Sheet is instantly rebuilt. You can even give your investors or your lawyer Edit access to the Term Sheet and have them make changes directly.
Often an investor will want to use their own term sheet. In order to get all the benefits of the SeedLegals platform you really want to use the SeedLegals term sheet, otherwise it’s going to be back to using lawyers.
10: Complete your Warranties and Disclosure Schedule
When investors decide to invest in your company it will be on the basis of promises you made (product demonstration, team members, financial forecast, business plan, etc.) or assumptions they made about your business (the business isn’t insolvent, you own your IP, you’re not involved in any lawsuits, etc.).
Before investors will write you a cheque, they’re going to want to see documentation and warranties from you that all these are in fact the case. The Warranties & Disclosure Schedule is where this happens.
You should get started on your Warranties & Disclosure document as early in the funding round as possible so you have everything ready even before you get to Term Sheet stage, that way you can avoid holding up deal closing while you frantically rustle up the necessary documents.
One thing to note is that investors will often want to provide their own Warranties & Disclosure Schedule and ask you to complete theirs. In many cases their version is designed for later-stage investments and may be much more complex and onerous. So you want to persuade investors to go with your version. One way to do that is to get ahead of the curve and send them your completed version before they send theirs, with a note saying that you can save yourselves a lot of money by using that one.
11: Create Shareholder Agreement, negotiate remaining deal terms
The Shareholder Agreement specifies more detail beyond the key deal terms that were agreed in the Term Sheet.
The Shareholder Agreement is an important document, so when creating yours make sure you put aside enough time to really consider what you are doing carefully, to make the right decisions – it’s not something that you can, or should, do in a rush!
SeedLegals makes it dramatically easier to complete this task. By completing a set of questions each accompanied by suggestions and advice, you’ll be able to build a Shareholder Agreement perfect for your company and easily make changes as requested and agreed with your investors.
The Shareholders Agreement comes as part of the Bootstrap and Seed Round packages, so if you're looking for a Term Sheet or Shareholders Agreement, the way to do that is to start a new funding round, and SeedLegals will then automatically build every document needed for your round, including the Term Sheet or Shareholders Agreement. And our team of legal and funding experts is on hand, all included, to help you every step of the way.
12: Create new Articles of Association
The Articles of Association are the rules that specify how a company is governed and run. When you formed your company, Companies House automatically generated a set of default company Articles for your company, known as the Model Articles, but they come with a number of problems and limitations:
Board meetings need a unanimous director vote – that’s bad, it can create decision gridlock. The Model Articles don’t give founders as much flexibility as they like about who they can transfer their shares to – that’s bad for founders. There’s no provision for vesting of founder shares – i.e. if one founder leaves after a month, they keep all their shares – that’s really bad for your ability to raise funds in the future. There’s nothing about the Tag-along, Drag-along, Compulsory transfer provisions that you and your investors will be looking for. There’s nothing about Exit provisions, i.e. what happens if you sell your business.
So, at the time of your first funding round, those Model Articles will need to be replaced by something fit for purpose. We'll automatically generate new ones for you as part of the Funding Round wizard.
The Articles of Association comes as part of the Bootstrap and Seed Round packages, so if you're looking to update your Articles, the way to do that is to start a new funding round, and SeedLegals will then automatically build every document needed for your round, including the Articles and the Shareholders Resolution which the shareholders will need to sign to adopt the new Articles. And our team of legal and funding experts is on hand, all included, to help you every step of the way.
13: Sign the Shareholder Agreement and send to shareholders for signing
Once you have signed Board Minutes and Shareholder Resolutions approving the new funding round, you may also need to get certain existing shareholders to also sign the Shareholder Agreement.
If you already have an existing Shareholder Agreement in place and you’re just issuing new shares without making any changes to the existing Shareholder Agreement, great, skip this step and head straight to Deed of Adherence below.
If existing shareholders only have Ordinary shares and the rights of their shares aren’t changing as a result of the new share offering, there’s no need for them to sign anything, easy.
That leaves your new investors for this funding round and any existing shareholders who have Preference Shares whose rights are changing as a result of the new share issue who all need to sign the new Shareholder Agreement, along with a director of your company who needs to sign on behalf of the company.
After going through the logic above, you now have a short list of new investors and existing shareholders (typically just previous investors, not founders or team members holding Ordinary shares) who need to sign the Shareholder Agreement.
Unlike most other documents where each person has their own personal agreement that only they and the company sign, in the case of the Shareholder Agreement everyone who needs to sign does so in a big signing block at the bottom.
Previously this use to be an admin nightmare, so the best way is to invite your shareholders to your SeedLegals dashboard where the Shareholder Agreement will be ready for them to sign right when they log in. Then, the SeedLegals platform will automatically collate all the signatures for you. That’s definitely the way to go.
14: Investors deposit funds into your bank account
Once you have enough signed forms back ahead for the deal to go ahead – typically when enough investors have signed and returned their Shareholder Agreement committing at least the minimum funding amount listed in the term sheet – then it’s time to ping your investors again, this time for their money.
No investor wants to be in a position where they contributed their £100K of a £300K funding round only to find they were the only one, now the company has insufficient money to deliver on its goals, and they’re at risk of losing their investment. So a chicken and egg game sometimes gets played here, with investors waiting for others to make their deposits first. Hopefully that won’t happen to you, but if it looks like some investors are hanging out, or you’re waiting for the first deposit, then get on the phone, hustle!
15: Have a board meeting with Board Minutes approving the funding round
The next step is to have a Board meeting (with your existing Board of Directors, not yet any new directors who may join the board once the deal closes) to sign off the change to the Articles, the Shareholder Agreement, and the issue of new shares. You’ll probably need a 75% super majority vote for this, because you’re making a change to the company’s Articles.
So, you’ll need to convene a board meeting and vote to approve the deal. Importantly, you’ll need a prepare a signed Board Minutes as a record of that. SeedLegals makes that easy – in just a few clicks you’ll generate a Board Minutes document for one of the directors to sign, then you’re done on that.
16: Create a Shareholder Resolution to get shareholder approval for adopting the new Articles
Right after you have Board approval for the new funding round you’ll next need to get approval from your shareholders for the funding round.
Approval is needed from your existing shareholder because their shares are being diluted by the new shares, and also in the case that the new shares will give new investors more rights than existing shares and shareholders have.
You now need to send a Shareholder Resolution to all your existing shareholders and ask them to agree to the new funding round. Hopefully you’ll only need the approval of a few key shareholders, including the founders, to reach your 75% majority, but you’ll need to send the required information to all shareholders.
SeedLegals makes this easy, particularly if you’ve already invited your existing shareholders and new investors as team members in your company dashboard so they can sign online right here.
17: Send out signed Shareholder Certificates
Once you have their signed Shareholder Agreement and Deed of Adherence, and you’ve received their investment money, then it’s time to send each investor a Shareholder Certificate for their shares.
If a shareholder has invested on an SEIS / EIS basis then it’s critical that you get their money before issuing them their share certificate or otherwise their tax deductions may get disqualified and there will be much unhappiness.
SeedLegals lets you create a beautiful shareholder certificate for each shareholder in a couple of clicks:
Go to the Cap Table Click to view by Round. Next to each shareholder’s name you’ll see a small gold certificate icon –click that SeedLegals will create a PDF that you can download and save You need to print and sign that certificate, and post it to each shareholder(it’s effort to do that, but we figure a small price to pay in return for their investment in your company)
The share certificate needs to be signed by two company directors (if the company only has one director then that director should sign along with a witness).
18: Update your company Share Register
You’re legally obligated to keep a register of all your shareholders and their shareholding, available for inspection on demand at the company’s premises.
We think that logging into SeedLegals portal meets that requirement, but if you want you can download your Share Register as a PDF and keep a printout in the drawer (or simply keep the PDF as a backup) by clicking the Export Share Register button in the Cap Table view. Easy.
19: File SH01 form with Companies House
Anytime you issue new shares, you have one month to fill in a Form SH01 and send that to Companies House, who then record that information in your company register and also make it publicly available.
To do that, just click the Download Share Register button in the Share Certificates view, then log into Companies House and update your share register with the PDF you just downloaded.
20: Get back to your real business!
If you made it here (and you’re not just idly browsing this guide) amazing, fabulous work, you’re done!
There’s just one thing to remember:
There are three certainties in life: Death, Taxes and The Next Funding Round.
Or, as one startup told us, we’re always in funding mode, the moment we’ve closed a round we’re already working on the next round.
Now you’ve experienced the steps needed for a funding round, think about how you can use the SeedLegals platform to make the next one faster and easier.
So, until next time…!