Governance & Legal Foundations: The bedrock of business growth

Governance & Legal Foundations: The bedrock of business growth

When Sarah launched her fintech startup three years ago, she did what most founders do - she got the basics sorted quickly and cheaply. Standard incorporation documents from Companies House, a template shareholder agreement downloaded online, and a handshake deal with her co-founder about equity splits.

It worked... until it didn't.

When their Series A discussions started heating up, investors began asking uncomfortable questions. Who had decision-making authority? What happened if a founder wanted to leave? How were intellectual property rights assigned? The answers were scattered across informal agreements, assumptions, and that increasingly problematic "we'll figure it out later" approach.

Three months and £15,000 in emergency legal fees later, Sarah had learned a painful lesson: weak legal foundations cost far more to fix than they do to get right from the start.

Why governance matters more than you think

When governance works well, it's invisible - decisions flow efficiently, responsibilities are clear, and stakeholders trust the system. When it doesn't, it becomes the bottleneck that slows everything down.

Consider these common scenarios that strong governance structures prevent:

• Deadlocked decisions when co-founders disagree on strategic direction

• Investment delays while lawyers untangle unclear shareholding structures

• Founder disputes over equity, roles, or exit terms that paralyse operations

• Regulatory issues from unclear director responsibilities and decision-making processes

The cost of fixing governance problems late in the game isn't just financial - it's the opportunity cost of deals that don't happen, decisions that get delayed, and focus that gets diverted from growing the business.

Governance isn't just about compliance or ticking legal boxes. It's about creating the structural clarity that lets your business operate smoothly, make decisions quickly, and attract the investment you need to grow.

The ROI of getting governance right early

Strong governance structures don't just prevent problems - they actively drive growth. Businesses with clear governance frameworks see measurable benefits:

• Faster decision-making: Clear authority structures mean less time spent debating who decides what

• Investor confidence: Professional investors move faster when they see robust governance in place

• Talent attraction: Senior hires want to understand the structure they're joining

• Strategic clarity: Defined roles and responsibilities help teams execute more effectively

As we noted in our introduction to this series, SMEs with solid legal foundations are 60% more likely to secure outside investment and close deals 35% faster than those scrambling to fix governance issues mid-process.

💡 Tip: For most startups, a limited company is the clear winner. It provides the best balance of protection, flexibility, and investment readiness. 

1.      Dual company structures - when and why

Some businesses benefit from using a holding company, typically when:

• Operating in multiple jurisdictions - a UK holding company with overseas subsidiaries

• Separating risk - property holding assets separate from trading operations

• Tax planning - though recent rules have limited many benefits

Important: Don't overcomplicate early structures. Most startups should begin with a single company and add complexity only when there's a clear commercial reason.

2.      Company constitution & articles

Your articles of association are the operating manual for your company. Well-drafted articles anticipate future scenarios: What happens when you need to issue new shares? How do you remove a director who isn't performing? Can decisions be made without physical meetings?

Standard template articles often create more problems than they solve for growing businesses. The £500-£1,000 investment in bespoke articles typically pays for itself within months by preventing disputes and delays.

 3.      Shareholder & founder agreements

These documents are your insurance policy against the most common causes of startup failure. They should cover:

• Equity ownership and vesting schedules

• Decision-making rights and voting thresholds

• What happens if someone wants to leave (or needs to be removed)

• Intellectual property ownership and assignment

• Restrictions on competing activities

A well-structured founder agreement isn’t about planning for failure – it’s about creating clarity that lets everyone focus on success. 

4.      Board procedures & director duties

Even if you're not planning a formal board immediately, documenting decision-making processes saves time and reduces risk. This includes:

• Who can bind the company contractually

• How conflicts of interest are managed

• Documentation requirements for key decisions

• Regular review processes for strategy and risk

Clear procedures become essential as you scale, especially when bringing in investors or non-executive directors.

5.      Equity & funding structures

Getting your equity structure right from the start is critical for future fundraising. This means setting up appropriate share classes, employee option pools, and anti-dilution provisions that protect both founders and early employees while remaining attractive to investors.

Key considerations include creating sufficient authorised share capital for growth, establishing an Employee Share Option Pool (ESOP) for future hires, and implementing appropriate vesting schedules that incentivise long-term commitment while protecting the company if someone leaves early.

Tax-efficient structures like EMI (Enterprise Management Incentives) options can significantly reduce the tax burden on employees while providing attractive retention tools for growing businesses.

Remember, investors dislike - founder equity splits that seem unfair or unstable, missing IP assignments, unclear decision-making rights, or overly complex cap tables with too many share classes.

Quick wins: Three governance foundations you can implement this month

1. Audit your current structure
Gather all your incorporation documents, agreements, and informal arrangements. Map out who owns what, who decides what, and where the gaps are. Often, simply documenting existing arrangements reveals issues that are easy to fix now but expensive later.

2. Update your company information
Ensure Companies House records are accurate and current. Check that directors' addresses, shareholdings, and PSC (Person of Significant Control) information is up to date. Set calendar reminders for annual filings (due 9 months after year-end for accounts, within 28 days for Confirmation Statement). Regulatory compliance starts with basic record-keeping.

3. Document key decisions
Start a "Board Decisions Log" - even if you're not formally incorporated as a board yet. Include date, decision made, who voted, and reasoning. Use templates for board minutes (available from Companies House) and store them digitally with proper version control. This isn't just good practice - it protects directors from personal liability and creates the audit trail investors expect to see.

4. Implement basic conflict of interest procedures

Create a simple conflicts register where directors declare any potential conflicts (other directorships, family relationships with suppliers, personal investments that might conflict). Review this quarterly and require directors to recuse themselves from relevant decisions. This prevents governance issues that could derail investment later.

5. Set up proper signing authorities

Document who can sign contracts and for what amounts. For example, any single director can bind the company up to £5,000, but contracts over this amount require two signatures or board approval. Include bank mandates, supplier agreements, and customer contracts. This prevents unauthorised commitments and protects the company from overreach.

When to DIY vs. when to get professional help

Some governance tasks you can handle internally:

• Regular Companies House filings using Web Filing (set up direct debit for fees)

• Basic board meeting documentation

• Simple shareholders' resolutions for routine matters

• Basic employment contract reviews using ACAS templates

But invest in professional advice for:

• Shareholder agreements - template versions miss crucial clauses around leaver provisions and drag/tag rights

• Fundraising preparation - investors expect specific warranties, representations, and disclosure processes

• Tax-efficient share schemes - EMI schemes require specialist knowledge to avoid HMRC challenges

• Complex restructuring - group structures, holding companies, and international expansion need specialist input

The key is knowing which decisions have long-term structural implications.  Allocate an annual budget for legal and governance support. A £2,000 investment in proper shareholder agreements can prevent £20,000+ disputes later.

Building governance that grows with you

The best governance frameworks aren't rigid - they adapt as your business evolves. What works for a three-person startup won't work for a 30-person scaleup preparing for acquisition.

Plan for growth by building flexibility into your structures:

• Equity pools for future hires and advisors

• Decision-making processes that work with larger teams

• Board structures that can accommodate investors

• Systems that scale without constant legal intervention

What’s coming next?

In Article 3, we'll explore Reputation & Protection - how to safeguard your IP, secure your data, and build the trust that becomes your competitive advantage.

Because when you build on solid legal foundations, you don’t just avoid risks – you unlock opportunities and create the platform for sustainable growth.

Author

Carrie Stephenson, Founder, BRAVE: Legal

About BRAVE: Legal

From founder to funded, we grow with you.

At BRAVE: Legal, we know that traditional legal support is often reactive, expensive, and fragmented. We do things differently.

We give scaling businesses a connected legal framework that grows with you - covering governance, contracts, compliance, people, and risk. From your first product launch to raising investment or expanding into new markets, we align legal planning with your strategy so you can scale with clarity and confidence.

👉 Ready to assess your legal readiness? Book a free 30-minute legal health check and discover the gaps that could be holding back your growth.
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