Introduction: Why Legal Health Checks Matter for Startups

Most startups focus on product, customers and cash flow, which is exactly how it should be. But as teams grow, investors come in, and revenues start to climb, small legal gaps can turn into large distractions: blocked funding rounds, regulatory notices, employee disputes, or IP ownership questions.

A simple, structured legal health check helps founders move from “we’ll fix it later” to "we know where we stand". The core areas every growing startup should review at least once or twice a year, even if there is no immediate crisis.

1. Entity Structure and Cap Table Hygiene

The first layer of legal health is the company’s foundation: how it is incorporated, who owns what, and how those rights are documented.

  • Incorporation Documents: Verify that the incorporation certificate, memorandum/articles, shareholders’ agreements and any amended documents are consistent and up to date.
  • Cap Table Accuracy: Maintain a clean, current cap table that reflects all share issuances, transfers, ESOP grants and convertible instruments (convertible notes, SAFEs, CCDs, etc.).
  • Board and Shareholder Resolutions: Ensure that key decisions, such as funding, major contracts, bank facilities, and ESOP approvals, are backed by properly drafted and signed resolutions.

Investors and acquirers will test these basics first. Any inconsistencies here can delay or derail otherwise strong transactions.

2. Founder Arrangements and Alignment

Many early-stage teams operate on trust and verbal understanding. That trust is important—but it should be supported by clear, written arrangements.

  • Founder Service or Employment Agreements: Define roles, responsibilities, time commitment, compensation and vesting.
  • Vesting and Exit Scenarios: Document what happens to founder equity in cases of resignation, removal, long-term absence, or misconduct.
  • IP Assignment from Founders: Confirm that all IP created by founders in relation to the startup is assigned to the company, not held individually.

Resolving founder disputes is far easier when everyone can refer back to a signed agreement prepared in calmer times.

3. Customer, Vendor and Online Contracts

Contracts are the arteries of a startup’s revenue and delivery. Often they are a patchwork of email chains, outdated templates and one-sided customer forms.

  • Standard Customer Agreements: Have a base contract (or terms of service) that covers scope, pricing, IP ownership, confidentiality, limitation of liability and termination.
  • Key Vendor and Partner Contracts: For critical suppliers (cloud, payment gateways, strategic partners), ensure there are written agreements rather than informal arrangements.
  • Click-Wrap / Website Terms: If you operate a platform or app, check that your terms of use, privacy policy and disclaimers accurately reflect what you do in practice.

A periodic review of top revenue and critical vendor contracts helps identify gaps that can be fixed before a dispute arises.

4. Employment, Consultants and ESOPs

As hiring picks up, ad-hoc arrangements—especially for early employees and contractors—can create confusion on rights, obligations and IP ownership.

  • Offer Letters and Employment Agreements: Use consistent templates that cover role, probation, confidentiality, IP assignment, termination and restrictions.
  • Consultant / Freelancer Contracts: Clearly distinguish consultants from employees, and ensure that all deliverables are appropriately assigned to the company.
  • ESOP Policy and Grants: Have a board- and shareholder-approved ESOP scheme, term sheet and individual grant letters with vesting schedules and exercise conditions.

A quick internal audit of HR files often reveals missing signatures, absent IP clauses and informal arrangements that can be regularised with simple addendums.

5. Licences, Registrations and Sectoral Compliance

Even “light” or digital businesses have basic licences and registrations. As you grow into new geographies or sectors, these obligations change.

  • Core Business Registrations: Verify company registration, tax registrations, and any local registrations relevant to your industry or location.
  • Sector-Specific Permissions: For regulated sectors (fintech, health, education, logistics, etc.), map which registrations are already in place and which may be needed as volumes rise.
  • Foreign Operations: If you serve overseas customers, consider tax, data and consumer protection requirements in those markets, even if you have no physical presence there.

A “licence and registration matrix” for each office and product line gives leadership a clear view of current coverage and upcoming needs.

6. IP, Confidentiality and Data Protection

For most technology and knowledge businesses, intangible assets are the true value drivers. A legal health check must ask a simple question: who owns what, and how is it protected?

  • Trademarks and Brand: Check if your brand names, logos and key product marks are cleared and, where appropriate, filed for registration.
  • Patents and Know-How: Identify patentable innovations and confidential processes, and ensure there are internal protocols to protect and document them.
  • NDAs and Confidentiality: Use NDAs with vendors, advisors and potential partners when sharing sensitive product, customer or financial information.
  • Data and Privacy: Align your data collection, storage, consent and breach-response practices with your published privacy policy and applicable laws.
“For a startup, clarity on IP ownership and data handling is not a ‘nice-to-have’—it is the foundation on which future funding, partnerships and exits are negotiated.”

7. Notices, Disputes and Internal Governance Habits

Even the best-run startups receive notices—tax queries, customer complaints, employee claims or contract disputes. The question is not whether they arrive, but how systematically they are handled.

  • Notice Register: Maintain a simple tracker for all legal notices, regulatory letters, significant customer complaints and their status.
  • Board and Founder Minutes: Record key decisions in short but clear minutes, especially around funding, strategy shifts, major hires and large contracts.
  • Document Retention and Access: Decide where critical documents (contracts, approvals, IP filings, HR records) are stored and who has access.

These basic governance habits reduce the risk of inconsistent responses and demonstrate maturity to investors, regulators and counterparties.

How to Run a Simple Startup Legal Health Check

Founders do not need to turn into full-time lawyers. A practical approach is to run a focused review once or twice a year, together with internal leads and external counsel.

  1. List the Core Areas: Use the themes above—entity & cap table, founders, contracts, HR, licences, IP/data, disputes—as your master checklist.
  2. Collect Documents: For each area, gather the latest signed versions, filings and trackers into a single, organised folder or drive.
  3. Identify Gaps and Priorities: Mark items as “missing”, “needs update” or “acceptable for now”. Focus first on issues that could block funding, revenue or regulatory approvals.
  4. Implement Fixes: Regularise missing agreements, update policies, file overdue registrations and clean up inconsistencies in a time-bound plan.

Conclusion: Make Legal Health a Recurring Ritual

Legal and compliance work will never be the most glamorous part of startup life. However, a modest investment of time in a structured health check can prevent expensive firefighting later— missed funding windows, sudden platform shutdowns, or messy exits.

By treating legal health as a recurring operational review—just like metrics, product or finance— founders can protect their upside, reduce surprises and create a more predictable foundation for growth. The goal is not perfection; it is clarity on where you stand and a clear plan for closing the most important gaps.

If you would like a startup-specific legal health check tailored to your stage and sector, our team works with founders to map risks, prioritise fixes and design simple, repeatable compliance routines that support—not slow down—your growth.