{"id":182252,"date":"2023-07-26T06:15:00","date_gmt":"2023-07-26T05:15:00","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=182252"},"modified":"2026-06-25T03:05:22","modified_gmt":"2026-06-25T02:05:22","slug":"key-legal-documents-startup-investors","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/startups\/key-legal-documents-startup-investors\/","title":{"rendered":"What Key Legal Documents Do Startup Owners Need When Bringing on Investors?"},"content":{"rendered":"\n

Bringing investors into a UK startup runs through three core legal documents: a term sheet, a financing agreement and the due diligence pack you hand over along the way. The term sheet sets the deal terms and is mostly non-binding, though confidentiality and exclusivity clauses can bind you. The financing agreement, such as a share purchase agreement<\/a>, subscription agreement or SAFE, creates the actual legal obligations. Equity fundraising sits under the Companies Act 2006<\/em>, with the Financial Conduct Authority regulating public offers and crowdfunding. After signing, conditions precedent must be met before completion, and any security or new share issue is registered at Companies House. This article will outline the essential legal documents you need when bringing on investors in the UK.\u00a0<\/p>\n\n\n\n

The Term Sheet <\/h2>\n\n\n\n

A term sheet, also called heads of term, is negotiated relatively early in the financing process and sets out the key terms governing the financing arrangements. The purpose of a term sheet is to focus the parties’ minds so they can negotiate the finer points, all of which will comprise the final transaction agreement. <\/p>\n\n\n\n

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Most parties intend for a term sheet to have no legal effect. However, if the parties do not draft the term sheet properly, it can create legally binding obligations<\/a>.<\/p>\n<\/div>\n\n\n\n

The exact terms that the terms sheets set out depend on whether you are raising equity (shares) or debt financing (such as loans and bonds). As you will see in the table below, some standard terms overlap for both debt and equity. Notably, the terms in bold<\/strong> tend to have legal effect in the context of a term sheet. <\/p>\n\n\n\n

Debt Financing<\/strong><\/td>Equity Financing<\/strong><\/td><\/tr>
Common terms include the:
+ loan amount;
+ interest payable;
+ terms of any conversion rights to swap debt for shares; 
+ repayment schedule, including the redemption date;
+ specially negotiated loan covenants; events of default;
+ confidentiality clause<\/strong>;
+ exclusivity agreement<\/strong>;
+ party who pays costs<\/strong>;
+ dates at which the negotiations end if no deal is reached<\/strong>; and
+ governing law and jurisdiction clauses<\/strong>.<\/td>		Common terms include the:
+ valuation amount;
+ investment amount and the number of shares issued in exchange;
+ special rights, if any, attached to the newly issued shares;
+ conditions parties must fill before signing the share purchase agreement; 
+ confidentiality clause<\/strong>;
+ exclusivity agreement<\/strong>;
+ party who pays costs<\/strong>;
+ dates at which the negotiations end if no deal is reached<\/strong>; and
+ governing law and jurisdiction clauses<\/strong>.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Investors’ Due Diligence <\/h2>\n\n\n\n

Due diligence is the investigation an investor undertakes to ensure the target business is financially and legally sound. In other words, due diligence allows an investor to:<\/p>\n\n\n\n