What Documents Do I Need When Raising Capital for My Business?

What Documents Do I Need When Raising Capital for My Business?
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As a startup founder, you are on a mission to grow and expand your business operations. At some point, you may require significant funds to achieve this goal. While you may be in a position to bootstrap your business for a while, startups often rely on outside finance to really take their business to the next level.

To achieve this without the personal risk that comes with loans or lines of credit, you can raise equity capital. Indeed, if you can find investors who believe in your vision, they will fund your operations in exchange for a share in your business. 

However, the decision to raise capital should not be taken lightly—you must plan carefully and ensure you have the right legal documents for your investors. This article will explain the documents you will need to assemble when bringing investors onboard as part of your capital raise.

Term Sheet

After you have found investors who are interested in your business, you will need a term sheet (also known as a ‘heads of agreement’ or ‘memorandum of understanding’). The term sheet is a non-binding, pre-contractual document, which sets out the commercial terms of a capital raise. 

Typically, these terms will include:

  • the amount of money to be invested;
  • your business’ valuation;
  • the class of shares, and associated share class rights, that you plan to give to the investors;
  • the number of shares that the investors will receive;
  • how much influence or control the investors will have in your business’ decision-making;
  • who will pay legal expenses; and
  • any dividend policies.

Ultimately, the contents of a term sheet will depend on the type of funding round, the parties involved and the size of the capital raise. Take the time to ensure the contents of the term sheet are correct; if you do not cover all your bases, you could cause uncertainty in the transaction.

Why Do I Need One?

A term sheet is not a mandatory document, and is not always necessary. Nevertheless, you should consider having one to give yourself and your investors greater certainty and clarity. This is because a term sheet sets out the key commercial terms of the investment, outlining what you will receive from the capital raise as the business owner, and what the investors will receive from you in return. 

Therefore, it enables both parties to have a clear overview and common understanding of the transaction. Additionally, both parties can agree on key contractual terms, saving time spent on negotiation when preparing the formal documents.

Share Subscription Agreement

Another document you will need when raising capital for your business is a share subscription agreement. It is a legally binding document that regulates the capital raise between you and your investors. Specifically, the investors agree to buy your business’ shares, and you guarantee to issue the agreed number of shares to the investors.  

As with term sheets, the exact terms in a share subscription agreement will vary depending on the parties’ needs and the types of shares being issued. Common clauses include:

  • conditions precedent (i.e. acts that parties need to satisfy before the share subscription agreement comes into force);
  • price, number, and class of shares to be issued to the investor;
  • completion clause including the timing and process to finalise the transaction;
  • a confidentiality clause;
  • warranty clauses; and
  • default and termination clauses.

Why Do I Need One?

A share subscription agreement is important because it formalises your investors’ investment in your business. It guarantees that both parties commit to issuing and purchasing your business’ shares at the agreed price. An alternative to a share subscription agreement is a share subscription letter. The difference between the two documents is their length and complexity—a share subscription letter is shorter and contains fewer contractual terms.

Shareholders Agreement

An additional key document that you will need when raising capital is a shareholders agreement. The shareholders agreement defines the relationship among your business’ existing shareholders and the investors. Additionally, it sets out the terms and conditions for holding shares in your business.

A shareholders agreement will likely contain details such as:

Why Do I Need One?

The purpose of a shareholders agreement is to ensure that all your business’ shareholders are aware of their rights and obligations. Therefore, it can act as a framework for the transparent ownership and management of your business. Furthermore, if a dispute between your shareholders arises, the shareholders agreement will outline how to settle them.


The final document that you may need when raising capital is a company constitution (known in some countries as Articles of Association). Often investors may require a specific class of preference shares, such as “Seed Preference Shares” or something similar, to be issued in a capital raise. If you intend on issuing preference shares, and such shares do not currently exist in relation to your business, you will need to adopt a new company constitution that captures the specific rights of the new shares class. 

Why Do I Need One?

Most companies already have a reasonably basic constitution that is adopted when the company is created. Constitutions work in conjunction with shareholders agreements, and regulate the ongoing administration and operation of the company. In relation to capital raises, constitutions are primarily necessary to capture the specific share class rights being issued in the capital raise. 

Key Takeaways

As a business owner, a capital raise can take your business to the next level by giving you the funds necessary to scale up your operations. Once you have found the right investors for your business, you will need to turn your negotiations into a formal agreement. To do this, you should:

  1. ensure you have a term sheet that sets out the key terms of the capital raise;
  2. create a share subscription agreement to formalise issuing and purchasing your business’ shares; 
  3. have a shareholders’ agreement to define your shareholders’ relationship, rights, and obligations; and
  4. if you are issuing any class of shares besides ordinary shares, adopt a new constitution which includes the rights of the specific class of shares.  

Having the appropriate documents for your potential investors will set your capital raise up for success and ensure both parties are on the same page in the process.


Angelo Mazzone is a Lawyer at LegalVision. LegalVision is a full-service commercial law firm that works with startups and VCs in Australia, NZ and the UK. The firm's membership offers unlimited, on-demand access to a team of specialist startup lawyers.

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