Written by Fraz Butt, Senior Director · SRA-regulated · Last reviewed 8 September 2026
Raising investment as a UK startup business usually involves agreeing a term sheet with an investor, which sets out the key commercial terms, followed by formal legal documents including a subscription agreement and an updated shareholders agreement, and often involves qualifying the investment for SEIS or EIS tax relief. We regularly see founders sign term sheets without fully understanding the control and economic terms they are agreeing to, only to find the detail harder to change once formal documents are drafted.
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What a Term Sheet Actually Commits You To
A term sheet is usually described as non binding, but in practice, once both sides have agreed the commercial terms, it becomes very difficult to renegotiate them at the formal documentation stage. Key terms to review carefully include the valuation, the percentage of the company being sold, any preference rights the investor will hold on a future sale, and any veto rights over future decisions.
Understanding Investor Rights
Investors commonly ask for rights beyond simple share ownership, including a seat on the board, information rights to receive regular financial updates, and veto rights over major decisions such as issuing new shares or taking on debt. These rights are not unusual, but founders should understand exactly what they are agreeing to give up, and negotiate the scope of these rights where they go further than the size of the investment reasonably justifies.
SEIS and EIS, Why the Structure of the Investment Matters
The Seed Enterprise Investment Scheme and the Enterprise Investment Scheme offer significant tax relief to investors in qualifying UK companies, and many angel investors will only invest if the company qualifies. Qualifying requires the company to meet specific conditions relating to its size, trade and how the funds are used, and it is worth obtaining advance assurance from HMRC before finalising an investment round to give investors confidence the relief will apply.
Updating Your Shareholders Agreement After Investment
Once an investment completes, the company’s shareholders agreement will usually need to be updated, or replaced, to reflect the new investor’s rights alongside the existing founders’ arrangements. This is closely connected to the shareholders agreement the founders should already have in place from incorporation.
Related reading: shareholders agreements explained.
Due Diligence, What Investors Will Look At
Before completing an investment, most investors will review the company’s legal foundations, including its articles of association, existing shareholder agreements, key commercial contracts, employment arrangements and intellectual property ownership. Founders who have followed good practice from the start, as set out in our guide to starting a business, generally move through this process far more smoothly than those addressing these issues for the first time under pressure from an investor.
Related reading: our founder’s legal checklist.
Have a question about your specific situation? Call us on +44 (0)20 3588 3500 or press Enquire at the top of this page, our team responds quickly.
Frequently Asked Questions / Questions & Answers
Is a term sheet legally binding?
Most term sheets are expressed to be non binding on the commercial terms, but certain clauses, such as confidentiality and exclusivity, are usually binding. In practice, the commercial terms agreed are difficult to change later, so they should be treated with the same care as a binding document.
What is the difference between SEIS and EIS?
Both schemes offer UK tax relief to investors in qualifying companies, but SEIS is aimed at very early stage companies and offers more generous relief on smaller investment amounts, while EIS applies to larger investments in slightly more established qualifying companies.
Do I need advance assurance from HMRC before raising SEIS or EIS investment?
It is not a legal requirement, but most investors will expect it, since it gives them confidence that the tax relief will actually be available before they commit funds.
What rights do investors typically ask for?
Common rights include a board seat or observer rights, regular financial information, and a veto over major decisions such as issuing new shares, taking on significant debt or selling the company.
How long does it take to complete an investment round?
This varies significantly depending on the size and complexity of the round, but a straightforward seed round with SEIS or EIS relief typically takes between four and eight weeks from an agreed term sheet to completion.
Speak to Saracens Solicitors
For advice on structuring or documenting an investment round, speak to our Corporate Law team.
Visit our Corporate Law service page or call us on +44 (0)20 3588 3500 to arrange a consultation.
Saracens Solicitors, Thanet House, 231 to 232 Strand, London, WC2R 1DA.
