We've reviewed the legal foundations of hundreds of early-stage companies. The technology, the market, and the team are always different — but the legal mistakes are strikingly consistent.
1–2. Verbal Agreements & No Founder Agreement
1. Relying on verbal agreements. A handshake deal with a supplier, an early hire, or a co-founder feels efficient in the early days — until memories diverge on what was actually promised. If a term matters enough to argue about later, it matters enough to write down now.
2. Skipping the founder agreement. Co-founders rarely plan for a falling-out at the start of a friendship-turned-business. But without a written agreement on equity splits, vesting, and what happens if someone leaves, a single departure can leave a company legally deadlocked for months.
3–4. Unassigned IP & Missing Terms
3. Never formally assigning intellectual property. Code, designs, and content created by founders, freelancers, or early employees don't automatically belong to the company unless a written assignment says so. This gap is invisible until a funding round or acquisition, when a buyer's due diligence team finds it immediately.
4. Launching without terms of service or a privacy policy. Beyond the legal exposure, missing terms leave a company with no contractual basis to suspend abusive users, limit liability, or comply with data protection law — a problem that grows more expensive with every new user.
"Almost every IP dispute we see traces back to the same root cause: nobody signed anything when the work was actually done."
— Sarah Whitfield, Partner, Corporate Law
5–6. Contractor Misclassification & No Employment Contracts
5. Misclassifying employees as contractors. Treating someone as a contractor to avoid payroll obligations, while controlling their hours and tools like an employee, is one of the most commonly audited issues — and one of the most expensive to unwind retroactively.
6. Hiring without written contracts. Beyond the legal minimum, a clear contract sets expectations on IP ownership, confidentiality, and notice periods before a dispute gives everyone a reason to disagree about them.
7–8. Messy Equity & Ignored Compliance
7. Handing out equity informally. Verbal promises of "a few percent" to an early advisor or contractor, without paperwork, create what investors call phantom equity — undocumented claims that surface, and complicate a cap table, right when a company is trying to raise its next round.
8. Ignoring basic corporate compliance. Missed filings, unsigned board resolutions, and an out-of-date share register look like paperwork until they block a financing round or trigger personal liability for directors.
The Due Diligence Test
A useful early habit: imagine a serious investor's legal team reviewing every contract, agreement, and filing your company has ever made. If that thought is uncomfortable, it's worth fixing now — it will be far more expensive to fix during a live funding round.
9–10. Weak Data Practices & DIY Fundraising Docs
9. Treating data protection as an afterthought. Collecting customer or user data without a clear legal basis, retention policy, or breach process is a growing source of regulatory risk as data protection enforcement increases across most jurisdictions.
10. Drafting fundraising documents without legal review. Template term sheets and convertible notes found online rarely reflect the specific protections a founder needs, and an unfavourable clause signed early can compound across every future round.
How to Course-Correct
None of these mistakes are fatal on their own, and most are fixable with a focused legal clean-up — assigning IP retroactively, formalising verbal agreements, or correcting a cap table before it needs to be shown to an investor. The real risk is discovering several of them at once, under time pressure, in the middle of a deal.
A short legal health-check early in a company's life is almost always cheaper than the fix required a year later.