Legal Checklist Before Raising Startup Investment

Why due diligence exists

Due diligence is the investor's investigation into the company before committing funds. Its purpose is to verify that the company owns what it claims to own, that there are no hidden liabilities, and that the investment documents accurately reflect reality. Problems discovered during this stage can reduce the valuation, delay the closing, or cause the investor to walk away.

From the founder's perspective, the goal is simple: arrive at due diligence with nothing surprising. Every issue you fix beforehand is one less obstacle between you and the money.

Company existence and good standing

The first thing an investor checks is whether the company legally exists and is in good standing. This means the company is registered, its registration has not lapsed, its articles of association are on file, and its directors and shareholders are correctly recorded.

• Certificate of incorporation / registration extract.
• Current articles of association and any amendments.
• List of directors and officers.
• Confirmation that annual fees and filings are up to date.
• Beneficial ownership reporting.

A company that has missed filings or has outdated records raises immediate concern. These are easy to fix in advance and embarrassing to explain during a deal.

Cap table and shareholder documents

The cap table — the document showing who owns how many shares and in what class — is one of the most scrutinized items. An investor needs to see exactly how the company is owned today, and how it will look after their investment.

The cap table must match the underlying documents. Every share issuance should be backed by a share purchase agreement, a board resolution and a shareholder resolution. Discrepancies between the cap table and the paperwork are a red flag.

• An accurate, up-to-date cap table.
• Share purchase agreements for each issuance.
• Board and shareholder resolutions approving each issuance.
• Founders agreement and any vesting schedules.
• Any convertible instruments (SAFEs, convertible loans) and their terms.

If the cap table is unclear or undocumented, the investor cannot calculate their ownership or dilution — and the deal stalls until it is fixed.

Intellectual property ownership

Investors care deeply about IP because the company's value often lies in its product and know-how. The question is not whether the IP exists, but whether the company owns it. If a founder, employee or freelancer retained rights, the company may not own what it is selling.

Every person who has contributed to the product — founders, employees, freelancers, even early advisors — should have signed an IP assignment agreement. Where IP is registrable (trademarks, patents), the registrations should be in the company's name.

Contracts and commitments

An investor will review the company's contracts with customers, suppliers and partners. They look for terms that create risk: uncapped liability, termination rights, exclusivity, or change-of-control clauses that trigger on the investment itself.

• Customer agreements and standard terms of service.
• Supplier and vendor contracts.
• Partnership and distribution agreements.
• Lease agreements and any secured obligations.
• Any contract with a change-of-control or assignment clause.

A change-of-control clause can allow a customer or partner to terminate the contract when the investor enters — converting a valuable relationship into a liability overnight. These should be identified and, where possible, addressed before the round.

Employment and consultants

The investor wants to know that the people building the product are properly engaged with the company. This means written employment or consulting agreements, IP assignments, and — where applicable — equity arrangements such as options.

Missing agreements, people paid through personal accounts, or option grants that were promised but never documented all create uncertainty. The company should be able to show a clean set of agreements for every person who contributes.

• Written employment or consulting agreements for all contributors.
• IP assignment clauses in every agreement.
• Confidentiality obligations.
• Documented option grants and an option plan, where applicable.
• Confirmation that contractors are not misclassified employees.

Prior investment commitments

If the company has already raised money — through SAFEs, convertible loans, or prior equity rounds — the investor needs the full picture. Prior instruments affect dilution, control and the rights of existing investors.

Undisclosed prior commitments are among the most damaging discoveries in due diligence. The company should disclose every instrument, its terms, its conversion mechanics, and its effect on the new round. For the comparison between the main instruments, see SAFE vs Convertible Loan.

Documents to have ready

Preparing a data room in advance dramatically shortens the due diligence period. The following documents should be organized and ready to share:

• Certificate of incorporation and registration extract.
• Articles of association and amendments.
• Founders agreement and vesting schedules.
• Cap table and all share purchase agreements.
• All employment and consulting agreements.
• IP assignment agreements and IP registrations.
• Customer, supplier and partner contracts.
• Prior investment instruments (SAFEs, CLAs, term sheets).
• Board and shareholder minutes.
• Tax and VAT registration confirmations.

If you are unsure whether you are ready, the Early-Stage Founder Legal Assessment can help you identify gaps before an investor finds them.