Getting the foundations right early on in your business’ growth journey can make the difference between a business that scales smoothly and one that stumbles just when momentum builds. Legal and governance basics quietly shape every decision and shouldn’t be overlooked. Here are mistakes that we see regularly, alongside some practical, founder-friendly tips on how to successfully grow and operate your business.

Nail down your Articles of Association

Think of this as the rulebook for your company. This document spells out how the company will run internally, covering matters such as how decisions are made, how shares can be transferred and what powers the directors have. This forms a contract between the members of a company (and between each member and the company). You can opt for a standard set of rules or craft your own unique version. These articles give you a roadmap to follow and help keep everyone on the same page.

Get a Shareholders’ Agreement

Although having a shareholders’ agreement isn’t compulsory, it’s a good idea to have one in place when a company has multiple shareholders. This is a document that governs the relationship between a company’s shareholders and the company itself. It can cover similar ground to your Articles of Association but adds extra layers of protection and, unlike the Articles of Association, is a private contract as it is not filed at Companies House so can include items which may be commercially sensitive. In this document, you can provide for situations such as what happens if there’s a deadlock in decision-making, or how to deal with a founder who leaves the company (including what should happen to their shares and how that founder should be restricted from competing with the business going forwards).

Protect and assign your intellectual property (IP) from day one

Ensure all IP is owned by the company, not by founders, employees, or contractors. Put robust IP assignment and moral rights waivers in every employment and consultancy agreement. For contractors, don’t rely on “work for hire” concepts – use explicit present-tense assignments and confirm further assurances. Register core trade marks early (including in key export markets) and diarise renewals. Map critical third‑party code and licences; implement an open-source policy to avoid copyleft contamination. Keep a clear chain of title for code repositories, design files, brand assets and domain names. Investors will test this rigorously – clean ownership avoids price chips and indemnity demands.

Say no to “undilutable” shares

When you issue new shares, every existing holder’s percentage falls – you can’t choose whose shareholding is diluted as all shareholders of the same class of share are affected equally. Promising someone that they “won’t be diluted” means topping them up with extra shares to keep their shareholding percentage, which can create tax issues for them and worsens dilution for everyone else, often forcing founders to hand over their own shares to fix it. Whilst some venture capital and private equity houses require this as a standard term, we would recommend trying to resist offering “undilutable” equity. Consider offering standard protections instead, such as pro-rata rights to maintain holdings by investing alongside new money.

Founder directors – clarity is key

If you or any co-founders are also directors of the company, it’s sensible to ensure that you each have a director’s service contract. This document spells out your roles, responsibilities, and what happens if someone decides to jump ship. It should include clear IP assignment, confidentiality, and conflict-management clauses (e.g. disclosure of outside interests, approval thresholds for related-party matters etc.). Bake in practical leaver provisions aligned with any vesting in the articles so that there is no mismatch between the employment and share position. The result is fewer surprises, faster decisions, and cleaner diligence later.

Know your Rights as a Founder-Shareholder

A disgruntled shareholder can take action under the Companies Act 2006 to protect their interests. This involves petitioning the court for relief, which could result in other shareholders buying you out. Day-to-day, protect yourself upstream: adopt a shareholders’ agreement that covers reserved matters (what can’t happen without your consent), information rights, leaver mechanics, dispute resolution/escalation, and a fair exit process. Knowing the levers available – and documenting the ground rules early – reduces the risk of deadlock and gives you credible options if you need them.

Avoid promising future hires a fixed percentage – anchor offers to today’s cap table

Offering new hires a fixed percentage when they join can balloon unexpectedly if you raise or bring on other key hires with equity before they join. This can create unintended dilution and conflicting promises. It’s safer to set out a fixed number of shares (or options) at the outset, and to make clear that the relevant hires shares will dilute alongside everyone else on future issuances. Put any promises in writing, including any vesting requirements and use valuation/pre-money language with individuals rather than fixed headline percentages which may change with the company’s changing share capital.

Avoid “erasing” leavers

When a shareholder exits the business, ensure that you paper the transfer and keep a clear audit trail. Even if someone leaves before a vesting cliff and should end up with no equity, once shares have been issued, they are that person’s property – you can’t make them vanish without agreeing a transfer with them or following the agreed leaver mechanics (usually set out in the Articles of Association) or a formal cancellation/buy‑back process. Put the leaver provisions into action promptly: obtain signed stock transfer forms for each transferee, complete board/shareholder approvals, settle the price per the leaver terms, and update registers and filings so diligence shows a clean chain of title. Do this at the individual’s exit, not at the next funding round, to ensure that all required documents are executed and filed in advance of an investor or third-party undertaking diligence.

Make allotments conditional

The right to allot and issue shares is created by a board resolution, not by filing a form at Companies House or issuing certificates. This means that an unconditional allotment gives the subscriber a claim even if no money arrives. To avoid this, minute the allotment and issue as expressly conditional on receipt of funds and, if payment doesn’t arrive, pass a short follow-up resolution withdrawing the offer. If you’ve already allotted unconditionally, you’ll need written agreement to unwind it or a formal transfer/cancellation route. Always ensure that company registers, certificates and filings are updated promptly to show a clean audit trail.

Plan for funding and exits before you need them

Socialise standard term sheets, liquidation preferences, anti-dilution, consent rights and information rights before entering a process. Decide your preferred instrument (priced equity vs ASA/SAFE vs convertible loan) and align with SEIS/EIS and EMI constraints. Track KPIs, cohort and retention data, and sales pipeline quality – they drive valuation more than headline revenue. For exit readiness, maintain accurate management accounts, revenue recognition policies, and a disclosure bundle that supports warranties to minimise escrow/holdback.