Legal Documents
Jul 03
One of the key differences between getting money from the first three F’s (friends, family and fools) to angel investors is the need for legal documentation.
Most angel investors will insist on a legal agreement which governs the relationship between them as minority shareholders and the company. The main agreement is going to be the Investment Agreement. Potential shareholders will also want to see the Articles of Association to see what the company can and cannot do without getting permission from shareholders (and how many shareholders need to permit this action).
If you are not careful as an Entrepreneur you can find yourself spending a small fortune (£5,000 plus) on getting some very basic legal documentation in place. This is money which a start up on limited resources would much rather spend in other areas I am sure.
Nonetheless, it is important that you have signed documentation in place. It is important to remember at all times that you will have a contractual and therefore legal relationship with shareholders. I try to (and 90% of the time I succeed!) have a very friendly relationship with the companies I invest in but I need the comfort of having our relationship defined in legal terms.
Given the cost of acquiring legal documents, I have noted a few websites which give you access to the key documents you need for free. One of them is on the BBAA website http://www.bbaa.org.uk/index.php?id=147
Another site which is a little out of date but well worth having a look at is http://www.tomslaw.com/?allowin=1 it is run by a not for profit organisation (FISMA) and is a much more extensive bible of documents.
Please be aware though that these are generic documents based on UK law and because they are free there is no recourse if things go wrong - so please do use with caution!
They are a very good start though and I have used some of the documents from Toms Law myself. In our case, we adapted the skeleton for our purposes and then got it reviewed by a lawyer (it cost us £500 not the normal £3,000)
Hope this is useful advice.
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