The legal foundations a startup actually needs (and the ones it doesn't yet)

I enjoy working with founders, so I'll be honest with them, which means naming a pattern I see constantly: early-stage companies get their legal priorities almost exactly backwards. They over-lawyer — burning runway on elaborate structures for a business that might pivot next quarter — or they under-lawyer, skipping two or three foundational things that would have prevented the expensive mess they eventually walk in with. Usually it's both at once.

The good news is that the right list is short, cheap and stable. Get these done early and you can largely forget about law and go build. Here's what to do now, the mechanics that actually matter, what to wait on, and the checklist an investor's lawyers will run when it counts.

Do this now — cheap, and it matters enormously

Sort the founders out — with vesting

If there's more than one of you, this is the most important thing on the list, and founders skip it most because raising it feels like distrust. It isn't. A founders' agreement decides, while you all still like each other, who owns what, how decisions get made, and what happens to a founder's equity if they leave.

The mechanic that matters here is vesting, and it's worth understanding properly because it prevents the most common way early companies poison themselves. Imagine three founders split the company equally and one walks after four months — without vesting, they keep their third of everything you go on to build over the next decade, earned in a single summer. Vesting fixes this: founders earn their shares over time rather than owning them outright from day one. The market-standard shape is four-year vesting with a one-year cliff — you earn nothing for the first year (so a founder who leaves in month four leaves with nothing), then a chunk vests at the one-year mark, then the rest accrues monthly over the remaining three years. It costs almost nothing to put in place at the start and is close to impossible to impose later, once the shares already sit in someone's name.

Actually own your IP

Make sure the company owns what it's built on — the code, the brand, the designs, the content. This sounds obvious and is very often wrong in practice, because of a rule that surprises people: paying someone to create something doesn't automatically transfer ownership to you. The freelancer who built your first version may still own that code unless they signed an assignment. A founder who created something before the company existed may hold it personally. Whatever everyone assumed, the paper may say otherwise.

What you actually need is straightforward: a written IP assignment from every founder, employee and contractor who has touched the product, transferring their work to the company. It's a handful of short documents, trivial to do early. Leave it, and the gap surfaces at the worst possible moment — during a funding round or acquisition, when the other side's lawyers find it and either knock down your valuation or stall the deal while you fix it under pressure.

Get the basic contracts right

Clean, fair terms with your customers, and sensible contracts with the people who work for you — covering payment, liability, who owns the work, confidentiality, and what happens if someone leaves and takes your clients or your code. Nothing elaborate; just clear on the things that bite. Founders run on handshakes and half-remembered promises for a surprisingly long time, and it works fine right up until it very much doesn't.

Wait on this — for now

Here's the part good lawyers should tell you and often don't, because it means less work for them: a lot of legal machinery can, and should, wait. You probably don't yet need a complex group structure with a holding company and subsidiaries. You likely don't need an elaborate employee share scheme with three staff. You don't need a thick binder of policies for the fifteen situations that might arise someday. That work has its moment — a serious funding round, real scale, a specific risk that actually appears — and doing it before then mostly buys you a bill and a false sense of security. A good adviser tells you to wait and save your money, rather than selling you the full package because you're standing there with a chequebook and startup optimism.

The trap in the middle: "we'll sort it later"

Between "do now" and "wait" sits the thing that actually catches people — the instinct to defer everything, including the cheap essentials, in the name of moving fast. It's precisely backwards for the foundational stuff, because the essentials get harder and more expensive to fix the longer you leave them. Vesting is trivial to agree when nobody's left yet and a minefield once someone has. An IP assignment is a formality before a round and a crisis during one. The cost of "later" isn't just the eventual fee — it's the leverage you've lost and the co-founder who now has every reason to say no.

What investors' lawyers will actually check

Here's a useful way to prioritise: do now the things that a future investor's or buyer's lawyers will pull apart in due diligence, because a gap in any of these can cut your valuation or kill a deal. They will look for:

• A clean cap table — a clear, documented record of who owns what, with no vague promises of equity floating around unrecorded.
• Vesting on the founders' shares.
• IP assignments from everyone who built the product — founders, staff and contractors.
• Signed contracts with key customers and employees, not handshakes.
• No unrecorded promises — the "we said we'd give them 5%" conversations that were never papered and now haunt the round.

Close those five gaps early and diligence becomes a formality instead of a fire drill. Leave them and you'll be fixing them under time pressure, with someone else's lawyers setting the pace and your valuation on the line.

The judgement is the whole point

Founders struggle with all this because it's entirely a matter of judgement — what's worth doing, what can wait, what's genuinely risky versus what merely sounds alarming. That's exactly the call a good adviser earns their keep on, and exactly the one a firm optimising for billable hours has every incentive to get wrong in the expensive direction. The goal was never to do all the legal work. It's to do the right legal work, at the right moment, and spend the rest of your money and attention on the only thing that matters at this stage: building something people want.

Building something and not sure what's worth sorting now versus later? Have a straight conversation with us — we'll tell you what to do, and, just as usefully, what to leave well alone.

This article is one solicitor's view and general information, not legal advice — always take advice on your own situation before acting. Buzz Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).

Robert Festenstein

Solicitor · Head of Legal, Buzz Solicitors

A solicitor with more than two decades' experience in commercial law, dispute resolution, insolvency and judicial review. Robert acts for businesses, directors and individuals on the matters that carry real consequence — and leads Buzz Solicitors.