How to Prepare Your Startup for Investment: Legal and Financial Checklist (UK)

Why Investment Readiness Matters for UK Startups

Investors don’t just fund ideas; they invest in well‑prepared companies. When you seek investment, you’re inviting strangers to scrutinise your business. They will review your corporate documents, analyse your financials and check your compliance with HMRC and company law. Demonstrating that you have done the groundwork makes the startup investment preparation process smoother and gives investors confidence that you will manage their capital responsibly.

Transparency Builds Trust

Poor organisation can torpedo a funding round. Well‑prepared startups provide clear evidence of ownership, liabilities, contracts and intellectual property. According to investment readiness guidance, startups that demonstrate clarity, discipline and transparency earn investor trust faster and often on better terms. A messy cap table, missing filings or unresolved shareholder disputes signal risk and increase the likelihood that a deal will fall through.

Aligning with SEIS/EIS Incentives

The UK’s Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) offer generous tax relief to early‑stage investors. Many angels and seed funds are only willing to invest if your company is SEIS/EIS‑qualifying. However, SEIS/EIS eligibility has strict criteria: an SEIS company must have gross assets under £350,000, fewer than 25 full‑time equivalent employees and can raise up to £250,000 in total SEIS funding. EIS has looser limits but still requires fewer than 250 employees and gross assets below £15 million before the investment. Preparing documentation to prove eligibility and securing advance assurance signals that you care about investor tax incentives.

Shortening the Due Diligence Timeline

Due diligence can take weeks or months. Founders who assemble a complete data room and respond promptly to questions will move more quickly. In a competitive funding environment, speed matters; the first startup to satisfy investors’ information requests often secures the term sheet. Conversely, gaps or inconsistencies slow the process and allow competing deals to overtake you. Following the investment readiness checklist below helps you avoid these delays.

Legal Preparation Checklist for UK Startups

Legal preparation is about organising your corporate affairs so that investors can verify ownership, rights and compliance. The tasks below form a startup legal checklist UK you can work through with your advisors.

Founders’ Agreements and Shareholder Structure

Early‑stage startups often neglect to formalise arrangements between co‑founders. A founders’ agreement should cover roles, responsibilities, vesting schedules, transfer restrictions, IP assignment and dispute resolution. Without these agreements, due diligence teams may see unresolved questions about who owns what. Investors also want to review your shareholder agreements, articles of association and any side letters. Clear governance documents reduce the risk of disputes and improve your negotiating position.

Key tasks:

• Draft or update a founders’ agreement covering equity splits, vesting and decision‑making.
• Ensure the articles of association reflect any share class rights (e.g., ordinary, preferred or non‑voting) and are compliant with the Companies Act.
• Prepare a current shareholder register and stock transfer forms.
• Document any SAFEs, convertible notes or advanced subscription agreements and align them with your cap table.

Cap Table and Share Classes

Investors rely on a cap table to evaluate their ownership percentage, potential returns and dilution risk. A clean cap table allows you to easily track founder shares and investor ownership, which is crucial during funding rounds and exit scenarios like acquisitions. Similarly, having a clean cap table is a signal to investors that your company is well‑run and worth supporting. Problems such as unrecorded share transfers, contradictory share classes, dead equity or poorly documented option pools are red flags.

Key tasks:

• Reconcile all historical share issuances, option grants and convertible instruments.
  
  
• Remove or reorganise ‘dead equity’ from departed co‑founders or advisors.
• Consolidate small, fragmented shareholdings where possible to simplify your register.
• Regularly update the cap table in a digital format. Tools, such as Undo Capital cap table automation, can help you automate calculations, share certificates and Companies House filings.

Intellectual Property Ownership

Your value often lies in intellectual property (IP). Investors will check whether IP has been properly assigned to the company and protected. For software startups, confirm that code is owned by the company and not contractors; for product‑based startups, ensure patents, trademarks and designs are registered. IP assignments should be signed by every founder, employee and contractor. Document any licences, open‑source dependencies or third‑party rights.

Key tasks:

• Record assignments of all IP created prior to incorporation and by contractors.
• Register trademarks, patents or designs relevant to your business.
• Maintain an IP schedule in your data room, noting registration numbers and renewal dates.

Regulatory and Compliance Documents

Investors will expect proof that your company is legitimately incorporated and complying with UK regulations. A due diligence data room should include at least the following documents:

• Certificate of incorporation and any certificates on change of name.
• Articles of Association and amendments.
• Shareholder register and share certificates.
• Board minutes and resolutions relating to major decisions.
• Employment contracts, consultancy agreements and non‑disclosure agreements.
• Privacy notices and data protection policies.
• Licences and permits required for regulated activities.
• Evidence of compliance with anti‑money‑laundering (AML) and Know Your Customer (KYC) rules.

Due diligence guides note that a data room should include articles of incorporation, company trademarks and patents, business plans, financial statements and records of ownership such as a cap table. Organising these documents now avoids last‑minute scrambles when investors request them.

Financial Preparation Checklist

Financial clarity is as important as legal readiness. Investors will scrutinise your historical performance, forecasts and tax compliance to assess risk. A structured financial due diligence checklist keeps you organised.

Financial Statements and Forecasts

Prepare at least three years of financial statements (or since incorporation) and build credible projections. Investors want to see an up‑to‑date profit & loss (P&L), balance sheet and cash‑flow statement prepared in accordance with UK GAAP or IFRS. Growth forecasts should be based on realistic assumptions, not hockey‑stick optimism, and tie back to your business model.

During due diligence, teams typically review financial statements, tax filings and audit reports. If your accounts are not audited, consider a voluntary review by an accountant; it signals professionalism. Provide notes explaining revenue recognition, deferred revenue, debt terms and any contingent liabilities.

Key tasks:

• Compile P&L, balance sheet and cash‑flow statements for the past 24–36 months.
• Prepare a bottom‑up forecast covering at least 18 months post‑investment.
• Document assumptions behind revenue growth, margins and capital expenditure.
• Reconcile bank statements to the cash‑flow statements.

Tax Filings and HMRC Records

Ensure all PAYE, VAT and corporation tax returns are filed and paid. Investors may request copies of HMRC correspondence, tax computations and any advance assurance letters. Outstanding tax liabilities or late filings can delay or derail an investment. If you operate R&D projects, provide documentation supporting R&D tax credit claims.

Key tasks:

• Verify that corporation tax, VAT and PAYE filings are up to date.
• Record any deferred tax liabilities or tax losses carried forward.
• File confirmation statements (annual returns) at Companies House.
• Gather HMRC correspondence, including compliance checks or approvals.

SEIS/EIS Readiness and Compliance

For early‑stage rounds, investors expect you to be SEIS/EIS‑compliant. Under SEIS rules, your company must have gross assets of less than £350,000 before the SEIS share issue, have fewer than 25 full‑time employees and raise no more than £250,000. EIS permits larger companies with fewer than 250 employees and gross assets below £15 million. SEIS and EIS schemes have been extended until April 6, 2035, providing long-term certainty for investors and startups. Additionally, the company must be unquoted, carry on a qualifying trade and not be controlled by another company.

Compliance is a multi‑step process:

1. Eligibility check: Confirm that your company meets the size, age and trading requirements. For example, SEIS companies must be less than three years old, while EIS companies can be up to seven years (or ten for knowledge‑intensive companies).
2. Advance assurance: Apply to HMRC for advance assurance at least one to two months before securing investment. Advance assurance provides investors with HMRC’s provisional confirmation that your shares will qualify for relief, though it is not a legal guarantee, but an “in‑principle” confirmation.
3. Compliance statement: After issuing shares, submit SEIS1 or EIS1 compliance statements to HMRC so investors can claim tax relief.
4. Ongoing compliance: Maintain qualifying status for at least three years. If you breach the rules (e.g., by repaying investors or changing trade), investors’ tax relief may be withdrawn.

Key tasks:

• Assess eligibility against the SEIS/EIS criteria (gross assets, employees, trading activities).
• Prepare supporting documents for advance assurance – business plan, financial forecasts, shareholder agreements and details of the investment.
• Maintain an updated cap table to show investors’ shareholdings and confirm that no investor holds more than 30% of the company (a SEIS/EIS rule).
• After the round, submit compliance statements (SEIS1/EIS1) and distribute SEIS3/EIS3 certificates to investors.

Due Diligence Preparation: What Investors Expect

Due diligence is the investor’s audit of your company. It involves a deep review of legal, financial, commercial and operational matters. By anticipating questions and organising your data room, you can reduce friction and build rapport.

Legal Due Diligence

Investors will examine your share structure, rights and obligations. They review articles of association, shareholder agreements, vesting schedules, option schemes, convertible instruments and any existing term sheets. They also verify that intellectual property has been assigned to the company and that there are no outstanding litigation or regulatory issues. Ensure you have executed employment contracts, consultancy agreements and NDAs; unresolved disputes around founder equity or IP will jeopardise the deal.

Financial and Tax Due Diligence

Financial due diligence goes beyond reviewing your accounts. Investors will test your revenue recognition policies, cash‑management discipline and cost controls. They often conduct financial analysis, legal contracts and employee structure reviews. Tax due diligence may include queries about capital allowances, VAT compliance and R&D tax credits. Provide clear schedules of debt, leases, contingent liabilities and any potential liabilities arising from warranties or indemnities.

Operational and Compliance Due Diligence

Operational due diligence focuses on the viability of your business model. Investors assess customer contracts, supply chain agreements, key hires, regulatory licences and compliance with employment law, data protection and AML requirements. Document policies for GDPR, health and safety, environmental management and any sector‑specific licences.

Data Room Checklist for UK Startups

Creating a well‑organised virtual data room makes due diligence easier. Include the following categories:

These categories align with due diligence guidance that recommends including articles of incorporation, company trademarks and patents, business plans, financial statements and cap table records.

SEIS/EIS Readiness as Part of Investment Preparation

Eligibility Confirmation

Before applying for tax relief, confirm that your startup meets the statutory conditions. Under SEIS, your gross assets must be below £350,000 and you must employ fewer than 25 full‑time equivalent employees. Under EIS, you can have up to 250 employees and gross assets not exceeding £15 million before investment. Companies must carry on a qualifying trade (most professional services, property development and financial services are excluded) and be unquoted. They must also use the funds for growth and development, not for acquiring another business or repaying loans.

Advance Assurance and Investor Confidence

Advance assurance is a process whereby HMRC reviews your proposal and confirms that, in principle, your shares should qualify for SEIS/EIS relief. Guidance suggests applying one to two months before securing investment because HMRC approvals can take several weeks. Advance assurance is not a legal guarantee but an “in‑principle” confirmation. Nonetheless, most SEIS/EIS investors require the company to have advance assurance from HMRC before they invest. A well‑prepared application includes your business plan, financial forecasts, details of proposed investors (if known), copies of constitutional documents and information about previous funding rounds.

Receiving advance assurance shows that you’ve planned your fundraising thoroughly and de‑risks the tax relief for investors. It can also speed up the investment process because investors know they can claim their tax benefits once the compliance statements are filed.

Ongoing Compliance after Investment

After closing the round, your responsibilities continue. You must issue shares within the time frame agreed with HMRC and submit SEIS1/EIS1 compliance statements so investors receive their SEIS3/EIS3 certificates. Keep meticulous records of how you spend the funds (the money must be used within three years for growth and R&D, not for repaying debt or paying dividends). Monitor your share cap to ensure no investor exceeds the 30 % ownership limit (for SEIS/EIS). Finally, file annual returns, update your cap table and communicate material changes to HMRC.

Common Mistakes Before Fundraising

Mistakes in legal and financial housekeeping can derail deals. Here are typical errors founders make before approaching investors:

1. Messy or inaccurate cap table – A disorganised cap table can derail fundraising. Not setting aside enough shares for future investors or forgetting to update the option pool leads to unexpected dilution and investor pushback.
2. Neglecting regular updates – Many founders create a cap table during incorporation and forget to update it. Dead equity from former team members and unrecorded share transfers create confusion.
3. Poor document management – Missing or outdated articles of association, shareholder agreements or employment contracts slow due diligence. Use a central repository and version control.
4. Unclear IP ownership – Failing to assign IP to the company or document licences can compromise your valuation.
5. Tax and compliance arrears – Late or outstanding filings for VAT, PAYE or corporation tax signal poor financial discipline.
6. No SEIS/EIS advance assurance – Waiting until the last minute to apply for advance assurance may delay your round. Since investors often require assurance before investing, plan ahead.
7. Overlooking regulatory obligations – Ignoring data protection, AML/KYC, and sector‑specific regulations can lead to fines and reputational damage.

Avoiding these mistakes shows professionalism and saves time when investors start their checks.

How Undo Capital Helps You Prepare for Investment

Undo Capital is a UK‑focused platform that automates the legal and financial preparation tasks described in this checklist. It automates eligibility checks against HMRC rules, generates compliant documentation and performs investor verification. By integrating cap table management, document generation and SEIS/EIS workflows, Undo Capital reduces administrative overhead and minimises human error.

With Undo Capital, you can:

• Digitise your cap table and issue shares or options with built‑in Companies House filings.
• Generate SEIS/EIS advance assurance applications, compliance statements and investor certificates.
• Store and share legal documents securely in a data room accessible to investors.
• Verify investor status and perform AML/KYC checks.

Automate your legal and financial preparation with Undo Capital so you can focus on building your business rather than chasing paperwork.