Setting Up a UK Start-Up: Getting the Legal Structure Right from Day One

Launching a business involves more than just a good idea — it requires a solid legal foundation. From incorporating your company and allocating shares, to protecting intellectual property and structuring for future investment, decisions made in the early stages will shape your start-up’s ability to grow, raise funding, and retain control.

Here’s a straightforward guide for UK-based founders looking to set up their start-up properly from the outset.

1. Forming the Right Legal Entity

In the UK, the most common structure for a start-up is a Private Limited Company (Ltd) registered with Companies House. It offers limited liability to shareholders, enables equity investment, and is the expected structure for most venture-backed businesses.

Other options:

Sole trader or partnership – Fast to set up, but offer no liability protection.
LLP – Useful for professional services firms, but not equity-investment friendly.
Overseas registration (e.g., US C-Corp) – Sometimes used if raising from US investors, but adds cost and complexity.

For most early-stage ventures, a UK Ltd company is the right place to start.

2. Drafting Bespoke Articles of Association

Most companies start with model articles, but serious investors expect a customised set. These govern how the company operates and protect both founders and investors in future funding rounds or exits.

Key provisions should include:

Pre-emption rights on new share issues
Drag-along and tag-along rights in a sale
Board rights and decision-making protocols
Founder vesting and treatment of leavers
Reserved matters requiring investor consent

A good solicitor with venture experience can tailor these appropriately.

3. Issuing and Structuring Shares

Setting up the initial cap table (capitalisation table) properly avoids disputes later. All equity should be issued by the company and recorded at Companies House.

Suggested structure:

Founders hold most of the equity but subject to vesting (e.g., over 3–4 years with a 1-year cliff)
Set aside a 10–20% option pool for future hires
Consider allocating small stakes (0.25–2%) to advisors in exchange for specific value

Avoid informal promises or “handshake” equity deals — formal agreements are essential.

4. Assigning Intellectual Property (IP)

All IP related to the product or technology must be assigned to the company, not held by individual founders, contractors, or third parties.

To protect the business:

Have all contributors sign IP assignment agreements
Register key trademarks and domains early
If developing technology with patent potential, consider filing in the UK or EU to support future IP claims and tax relief

Failing to assign IP can prevent future funding or a sale.

5. Making Use of the Patent Box and R&D Relief

UK start-ups working on innovative products may be eligible for substantial tax relief.

Patent Box:

Reduces corporation tax to 10% on profits attributable to patented inventions.
You need to own or exclusively license the patent and actively exploit it.

R&D Tax Relief:

Offers a cash rebate or tax reduction for qualifying R&D costs.
Available to loss-making and profit-making companies.
Best managed with a specialist accountant.

Both schemes can significantly reduce burn and extend runway.

6. Considering Offshore or Holding Structures

While most start-ups should stay simple, some may explore holding structures or offshore entities as they grow. Reasons might include:

Global expansion
IP holding and licensing
International investor requirements

Options like Ireland, Luxembourg, or Jersey may be considered for tax or regulatory reasons — but they introduce added complexity and must be justifiable.

In most cases, it’s better to wait until your company has traction and funding before exploring these.

7. Getting Your Accounting and Admin in Place

From day one:

Open a business bank account in the company name
Use accounting software (e.g., Xero) with professional support
Issue share certificates and maintain a cap table
Apply for EMI scheme approval if you plan to issue employee options — this provides tax advantages and is popular with investors

Governance matters too — even early-stage companies should hold board meetings (minuted), maintain statutory registers, and keep filings up to date.

Final Word

Many early mistakes are avoidable with the right structure and advice. Setting up a company properly isn’t just about compliance — it’s about building trust with future investors, co-founders, and customers. It shows that you take your business — and their involvement — seriously.

Whether you’re pre-seed or scaling fast, taking the time to set things up correctly will pay dividends in the long run.

Need help assessing or structuring your start-up?

Feel free to get in touch. Whether you’re preparing for funding or want to make sure you’re legally and commercially sound, early advice can make all the difference.