You're building a product. Talking to customers. Trying to find product-market fit. The last thing you want to think about is governance.
We get it. But here's the truth: getting governance basics right in month one takes a few hours. Fixing governance problems before an investment round takes months and can cost you the deal.
This is the stripped-down, no-nonsense guide to governance essentials for early-stage companies. Everything you need to know, nothing you don't.
Why Early-Stage Companies Should Care About Governance
Three reasons:
- Investors will check. Due diligence reveals every shortcut and mistake.
- It's cheaper now. Setting up properly costs hundreds. Fixing it later costs thousands.
- It protects you. Good governance protects directors from personal liability.
If you're planning to raise external capital (ever), governance isn't optional. It's table stakes.
The Five Essentials
1. Get Your Constitutional Documents Right
What you need:
Articles of Association that accommodate future investment, not the standard Companies House template.
Why it matters:Standard Articles don't allow for:
- Different share classes (essential for venture investment)
- Investor veto rights
- Drag-along provisions
- Preference shares
When investors want to put money in, they'll need these provisions. If your Articles don't allow them, you'll need to pass a special resolution to amend them (75% shareholder approval, Companies House filing, legal fees).
This adds weeks to your funding timeline. Sometimes it kills deals.
What to do:Have a lawyer or company secretary draft investor-ready Articles from day one. Cost: £1,000-3,000. Time saved later: priceless.
2. Align Your Shareholders' Agreement With Your Articles
What you need:
If you have a shareholders' agreement (you probably should), it must align with your Articles.
Why it matters:Your shareholders' agreement might say founders' shares vest over four years. But if your Articles don't reflect this, the vesting isn't enforceable at company law level.
Common misalignments:
- Vesting schedules not reflected in Articles
- Drag-along rights in SHA but not Articles
- Board appointment rights documented only in SHA
- Pre-emption provisions conflicting
What to do:When drafting your SHA, ensure the lawyer also reviews and amends your Articles to match. These documents must work together, not contradict each other.
3. Maintain Proper Records
What you need:
Clean, accurate, up-to-date statutory records and board minutes.
The statutory registers:
- Register of directors
- Register of shareholders
- Register of Persons with Significant Control (PSC)
- Register of charges (if you have any)
Board minutes:Every significant decision should be documented:
- Appointing directors
- Issuing shares
- Approving funding rounds
- Major contracts or commitments
- Changes to company structure
Why it matters:During due diligence, buyers or investors will ask to see:
- All board minutes since incorporation
- Evidence of proper share issuances
- Documentation of all corporate actions
Missing minutes or incorrect registers create doubt about who actually owns what. That kills deals.
What to do:
- Keep registers updated in real time (use Companies House WebFiling or company secretarial software)
- Take board minutes for every meeting (even if it's just the founders around a kitchen table)
- File everything with Companies House on time
4. Handle Share Issues Properly
What you need:
Every time you issue shares (to co-founders, employees, investors), do it correctly.
The process:
- Board meeting to approve the share issue
- Board resolution documenting the decision
- Allotment of shares to the new shareholder
- Update the register of members
- Issue share certificates
- File SH01 return with Companies House (within one month)
Why it matters:Investors want certainty about who owns what. If your cap table doesn't match Companies House records, and neither matches your share certificates, you have a problem.
Common mistakes:
- Verbal agreements to issue shares (not legally binding)
- Forgetting to file at Companies House
- No share certificates issued
- Register of members not updated
- Option agreements with no underlying share scheme
What to do:Treat every share issue as a formal corporate action. Document it properly. File it promptly. Issue certificates.
Even if you're just giving shares to your co-founder, do it right.
5. Set Up an EMI Share Option Scheme (If You're Hiring)
What you need:
If you're hiring employees and want to offer equity, set up an Enterprise Management Incentive (EMI) scheme.
Why it matters:EMI is the most tax-efficient way to give equity to employees in the UK:
- Employees can acquire shares at minimal tax cost
- Founders don't get diluted immediately
- Extremely attractive recruitment tool
Without a proper EMI scheme, you'll either:
- Give away actual shares (immediate dilution, immediate tax charge for employees)
- Offer options with no tax benefit
- Find great candidates choose competitors who offer EMI
What to do:
- Get HMRC pre-approval for your EMI scheme (shows your company qualifies)
- Have a lawyer draft the scheme documents
- Issue options under the scheme as you hire
- Keep proper records of all option grants
Cost to set up: £3,000-8,000. Value to your ability to hire: immense.
What You Don't Need (Yet)
To keep this practical, here's what you can skip in the first 12-18 months:
You Don't Need:
- A full-time Company Secretary
- Extensive board committees (audit, remuneration, etc.)
- Quarterly board meetings with 50-page board packs
- A standalone CFO just for governance
- Expensive corporate governance consultants
You Do Need:
- Someone who knows what they're doing to set things up properly
- A lawyer or company secretary you can call when questions arise
- Good habits (taking minutes, keeping records, filing on time)
- Willingness to do things properly even when it feels bureaucratic
The Governance Mistakes That Kill Deals
We see these repeatedly in due diligence:
1. The Phantom Founder
The mistake: A founder who left early still owns 25% of the company because no one documented their departure or implemented vesting.
The consequence: Investors won't proceed until resolved. Costs months and often significant money to buy out.
The fix: Vesting schedules and proper leavers' provisions from day one.
2. The Broken Cap Table
The mistake: The register of members doesn't match Companies House, which doesn't match the founders' understanding of who owns what.
The consequence: Cannot proceed with investment until resolved. May require professional forensic reconstruction.
The fix: Update records immediately every time shares change hands.
3. The Missing Minutes
The mistake: No board minutes for the first two years. Verbal agreements everywhere. Nothing documented.
The consequence: Cannot prove decisions were properly made. Cannot evidence valid share issues.
The fix: Take minutes from day one. Even brief notes are better than nothing.
4. The Unapproved Share Issue
The mistake: Shares issued to an advisor or early employee but never properly approved or filed.
The consequence: Validity of the share issue in doubt. May need to be unwound and redone properly.
The fix: Follow the proper process every time. Board approval, documentation, filing.
5. The Conflicting Documents
The mistake: Articles say one thing, shareholders' agreement says another. Neither matches what founders think they agreed.
The consequence: Massive arguments when trying to raise investment or sell the company.
The fix: Align documents from the start. Review them when anything changes.
The Governance Checklist
Use this to ensure you've covered the basics:
Formation Stage
- Investor-ready Articles of Association
- Shareholders' agreement (if multiple founders)
- Vesting schedules for all founders
- Initial share issue properly documented and filed
- First board meeting and minutes
As You Grow
- EMI scheme set up and HMRC-approved
- All share issues and option grants properly documented
- Board minutes for all significant decisions
- Statutory registers kept up to date
- Companies House filings completed on time
- Annual confirmation statement filed
- Accounts filed annually
Before Fundraising
- All of the above complete and correct
- Cap table matches all records
- No missing board minutes or resolutions
- All agreements with founders, advisors, employees properly documented
- Constitutional documents reviewed by lawyer
- Any historical errors corrected
Get Help Early
The best time to get governance right is at incorporation. The second-best time is now.
Most early-stage companies don't need full-time company secretarial support. What you need is someone who knows what they're doing to:
- Set up your structures properly
- Be available when you have questions
- Review your documents before you raise investment
- Fix any problems before they become expensive
The Bottom Line
Good governance for early-stage companies isn't about bureaucracy. It's about:
- Protecting yourself from future problems
- Being ready when opportunity arrives
- Not killing deals with avoidable issues
You don't need perfection. You need:
- The right foundational documents
- Proper records
- Good habits
- Someone to call when you have questions
Get these basics right, and governance becomes an enabler of growth rather than a barrier to it.
Skip them, and you'll spend months fixing problems whilst your competitors close their funding rounds.
Need Help Getting Governance Right?
London CoSec specialises in helping early-stage companies build proper governance foundations without unnecessary complexity.
We'll set you up with investor-ready structures, help you avoid common mistakes, and be available when questions arise as you grow.
Get in touch: contact@londoncosec.com
About the Author
Lysandros Lysandrides is a Chartered Secretary and qualified lawyer with over 20 years of experience advising growth companies on governance matters. He has helped hundreds of early-stage companies build proper governance foundations and has seen every governance mistake that can kill a deal. He is the founder of London CoSec and a member of the Chartered Governance Institute UK & Ireland.
