Legal Must-Haves Before Accepting Your First Investment
Raising your first round of investment is a big milestone. But before you accept any money, you must get your legal house in order. Investors expect clear documentation, and you’ll want to protect yourself and your business. Skipping this step can cause problems later, like fights over ownership or legal issues—something experienced Orlando Florida lawyers can help you avoid. Here’s what you need in place before taking on your first investor.
1. A Clean Cap Table
Before anything else, ensure your capitalization table (cap table) is accurate and current. This is the breakdown of who owns what in your company. Those agreements should be documented properly if you’ve granted equity to early partners, co-founders, or advisors.
Why it matters: Investors want clarity. They need to know precisely how much of the company they’re getting and who else has a stake. Messy or unclear ownership structures are a red flag.
Check for:
- Properly documented founder equity splits.
- Any convertible notes or SAFEs already issued
- Vesting schedules for equity holders
2. Founders’ Agreement or Shareholder Agreement
If you have co-founders or existing shareholders, you need a formal agreement. A shareholder agreement (or founders’ agreement in earlier stages) outlines roles, responsibilities, and what happens if someone leaves.
This protects everyone. You might all be aligned now, but disagreements happen. An explicit agreement can prevent costly disputes.
Key points to include:
- Equity ownership and vesting
- Roles and responsibilities
- Decision-making processes
- Exit terms if a founder leaves
- What happens in the event of a sale or IPO
3. Investment Agreement
You need an investment agreement once you find an investor ready to write a check. This document spells out the terms of the deal—how much they’re investing, what they get in return, and any special rights.
Common types:
- SAFE (Simple Agreement for Future Equity): Often used in early-stage startups. It converts into equity in a future financing round.
- Convertible Note: A loan that turns into equity later, often with interest and sometimes a set maximum value.
- Equity Purchase Agreement: If the investor buys shares directly, this outlines the price and terms.
Terms to pay attention to:
- Valuation or valuation cap
- Investor rights (e.g., information rights, pro rata rights)
- Liquidation preferences
- Voting rights
Make sure you understand everything in the agreement. If something’s unclear, ask or get legal help. It’s worth it.
4. Corporate Structure and Compliance
If you’re seeking venture capital, you should be adequately incorporated—ideally as a C-corporation. Delaware is the preferred state due to its business-friendly laws and investor familiarity.
Also important:
- Issue stock certificates to founders and early stakeholders
- File your 83(b) elections if using vesting schedules
- Maintain proper board minutes and corporate records
- Register for any required business licenses
Investors will want to see you operate as a legitimate, compliant business.
5. IP Ownership and Contracts
Your company’s intellectual property—code, branding, product design, or proprietary process—is often its most valuable asset. Make sure you own it.
Check these boxes:
- All founders and contractors have signed IP assignment agreements
- Employees have confidentiality and invention assignment clauses
- You’re not using protected third-party content without rights
If you’ve used freelancers or early collaborators, make sure their contributions are legally assigned to the company. If they aren’t, investors may hesitate.
6. Data and Privacy Compliance (If Applicable)
If your product handles user data, you must follow the relevant privacy laws, especially in industries like health, finance, or e-commerce.
Examples:
- GDPR (if you deal with EU users)
- CCPA (for California users)
- HIPAA (for health-related data)
Have clear privacy policies, terms of use, and data-handling practices. Many early-stage startups skip this, but a savvy investor will ask.
7. Legal Counsel
You don’t need an in-house legal team, but you should have a lawyer you can call. Startup-focused attorneys can help you draft and review documents, avoid costly mistakes, and flag red flags in investment terms.
Look for someone with experience in early-stage deals. They can help balance investor expectations with your long-term goals. Raising capital is exciting, but taking money before your legal foundation is solid can set you up for trouble. Clear contracts, a solid shareholder agreement, and compliance basics aren’t just about paperwork—they protect your business and help build investor trust.
It might feel like a lot, but you don’t have to do it alone. A few hours with a good lawyer now can save you months of cleanup later. Set things up right, and you’ll be ready to take that investment confidently.
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