Preparing for a Seed Round: Legal Checklist for Founders

For early-stage startups, raising funds through a seed round is an exciting and pivotal step. It’s often the first significant capital injection that can enable you to turn your vision into a thriving business. But what exactly is a seed round, and who should be thinking about it? In this article, we’ll walk you through what a seed round entails, who typically raises one, and then provide a comprehensive checklist for founders to get their company “investment-ready” before approaching potential investors.

A “seed round” is an early-stage fundraising round where startups seek initial external funding to support product development, market entry, and team growth. Typically, seed rounds are smaller than later funding rounds (think Series A, B, and C) but larger than the pre-seed stage (where a startup is usually at the idea or concept stage). These rounds typically raise between $100,000 and $2 million, though this can vary widely based on the industry and the business’s needs. Seed funding usually comes from angel investors, early-stage venture capital funds, or even friends and family who believe in your vision.

Seed rounds are typically raised by startups that have progressed beyond the “idea stage,” possessing at least an early version of their product or service, initial traction, and a scaling plan, and are seeking seed capital to grow the business. If you’re a founder with a minimum viable product (MVP) and initial customer feedback, or you have participated in an accelerator program and received positive indications from investors, now might be the perfect time to explore your first funding round to propel your venture forward. 

Step 1. Incorporate Your Startup

This might seem a bit obvious to some, but the first step in a seed round, and any area of startup funding, is always to ensure your business is formally structured as a company. Investors expect to invest in a business entity, not an individual or unincorporated venture, minimising investor risk. Incorporation also provides additional clarity around ownership, authority and limited liability protection. Some key incorporation points:

• In Australia, this means registering a proprietary limited company (Pty Ltd) with ASIC. You can do this by engaging a professional, such as a law firm or an accountant, or by using one of the many online services that offer this.
• You can either engage a law firm to prepare a company constitution that’s tailored to your needs (for instance, you may have different share classes with different rights attached) or you can adopt the template/standard Replaceable Rules under the Corporations Act 2001 (Cth). 
• Appoint all directors and ensure you have a registered office and company address.
• Obtain an Australian Business Number (ABN) and consider registering for GST if your turnover exceeds the relevant threshold.
  

Step 2. Create and Maintain an Accurate Capitalisation Table

A clear and accurate capitalisation table (cap table) is a foundational document for any startup trying to raise capital and be investor-ready. It sets out the ownership structure of the company and is one of the first documents that prospective investors (whether they are individuals or venture capital funds) will scrutinise when considering a seed investment.

A well-structured cap table will do the following.

• List all issued shares, detailing the type (e.g. ordinary, preference), number, issue price, and to whom they were issued — including founders, early hires, angel investors, and advisors.
• Reflect any convertible instruments, such as SAFE notes, convertible notes, or warrants, including the terms under which they convert, any valuation caps, discounts, or triggers.
• Include an option pool, both the current allocation and any proposed increase (especially relevant as many seed investors will require a pre-money expanded pool).
• Model post-money ownership scenarios, showing the dilution impact of new investment rounds, conversion of SAFEs/notes, and complete option pool utilisation.

Importantly, your cap table should be

• Kept up to date: Any changes in equity (e.g. new shares issued, options granted, SAFEs executed) must be reflected promptly.
• Dynamic and scenario-based: Utilise a spreadsheet or cap table management software (e.g., Cake, Carta, Pulley) that enables scenario modelling, including proposed raise amounts and investor ownership targets.
• Tied to legal documents: Each entry in your cap table must be backed by legally executed documents (e.g. share subscription agreements, board approvals, option deeds).

Why this matters: Inaccurate or incomplete cap tables raise red flags. Investors want to know precisely who owns what, how much they’ll be diluted, and whether there are any hidden liabilities (e.g. convertible notes stacking). A messy cap table suggests a lack of financial discipline or potential future disputes. It is also essential that your cap table is in order so you are ready for the next round or funding stage, such as a Series A round, should your startup pursue this down the line. Engaging a lawyer early to help prepare a strong capital at the seed stage will save your business valuable time and money in the future.

Step 3. Secure Intellectual Property (IP) Ownership

In most startups, intellectual property is the most valuable, and sometimes the only, asset. Investors are backing your ability to commercialise your product, brand, or technology, and that means that before funding, they want confidence that your company, not individuals, owns the IP. Whether it’s your brand, product design, or proprietary technology, ensuring your company owns all IP is critical.

To secure and maintain IP ownership:

Execute IP Assignment Deeds

Any founders, employees, or contractors who have created (or will create) IP must assign all rights to the company before beginning fundraising. Employment agreements or consultancy agreements should include IP assignment clauses. Still, it’s best practice also to execute a separate IP Assignment Deed, especially for work done before the company was incorporated or before contracts were signed, so there is no possibility for ownership disputes in the future..

Register key IP rights.

• Trademarks: Register business names, logos, and product names with IP Australia. Investors don’t expect you to have completed the process by the seed round, but they will want to see that applications are filed.
• Patents: If your business relies on innovative technologies, software, or processes, consult a patent attorney early. Even a provisional patent application can demonstrate to investors that you’re serious about protecting your innovation.
• Domain names and social media handles: These form part of your brand IP. Ensure they are registered in the name of the company, not a founder.
• Review open-source use: If your tech stack involves open-source code, make sure any use complies with licensing terms and does not inadvertently expose your proprietary code to public licensing requirements (especially under restrictive licences like GPL).
• Non-Disclosure Agreements (NDAs): While less valuable once you’re publicly fundraising, NDAs should be used during early-stage technical discussions with contractors, developers, or collaborators to protect sensitive IP in development.

For more detailed analysis on protecting intellectual property for startups and small businesses, see our analysis on the dos and don’ts of intellectual property here.

Step 4. Implement a Shareholders Agreement

Early-stage companies often run into trouble not because the business fails, but because the relationship between founders breaks down. A Shareholders Agreement sets the groundwork for governance, equity, and decision-making from the start, ideally before investors come on board and provide financing.

Shareholders’ agreements should include provisions relating to:

• Roles, responsibilities and expectations: Clearly define who is doing what — including CEO, CTO, COO, etc. This avoids misunderstandings about leadership, operational control, and strategic direction. Formalising these responsibilities now saves awkward and damaging disputes later.
• Equity vesting: One of the most important protective mechanisms. Even if shares are issued upfront, vesting provisions ensure that founders “earn” their equity over time (typically 3–4 years, sometimes with a 12-month cliff). This protects the company (and future investors) if a founder walks away early. Of course, if you are a sole-founder, you probably wouldn’t want to impose this on yourself unless an investor forces you to!
• Exit provisions: Spell out what happens if a shareholder wants to leave or needs to be removed. Will the company or other shareholders have the right to buy back their shares? At what price? These “shareholder departure” clauses avoid messy, drawn-out negotiations later.
• Dispute resolution: Agree on a process for resolving deadlocks — e.g. mediation, arbitration, or third-party tie-breaker. Founders are often close friends or colleagues, but disputes are common. Having a mechanism in place keeps the business running smoothly.
• Decision-making and reserved matters: Clarify which decisions can be made by individual founders (e.g. day-to-day operations) versus those requiring unanimous or majority founder consent (e.g. selling the business, hiring key personnel, changing the company).

Importance: Investors want to see that the founding team is aligned and that internal disputes won’t derail the company before the fundraising process begins. A Founders’ Agreement indicates alignment, but also protection, for the company in the event of disputes.

Step 5. Review Key Contracts and Employment Agreements

As part of seed round due diligence, investors will want to understand the backbone of your business operations. They’ll be looking to confirm that your relationships with founders, staff, suppliers, contractors, and customers are well-documented, enforceable and protect the company’s interests.

Ensure you have:

Employment Agreements

• All full-time and part-time employees should have written employment contracts.
• These must include clear job descriptions, salary or equity entitlements, confidentiality obligations, and most importantly, IP assignment clauses ensuring anything they create belongs to the company.

Consider also including non-solicitation clauses, especially for senior staff, to prevent talent poaching if someone leaves.

Contractor Agreements

• Independent contractors and freelancers should not be treated the same as employees — use tailored agreements that define their scope of work, deliverables, fees, and, importantly, IP ownership.
• If you’ve relied on offshore developers or agencies, confirm they’ve assigned any code or assets they’ve created.

Customer and Supplier Contracts

• Review all key contracts to ensure there are no unfavourable clauses (e.g. exclusivity, aggressive termination rights, automatic renewals, or hidden liabilities).
• For SaaS or tech startups, investors will want to see evidence of product-market fit — even simple customer agreements, service terms, or pilots can help show commercial traction.
• Confidentiality Agreements (NDAs)
• While not always necessary for fundraising, it’s good hygiene to use NDAs when disclosing sensitive information to strategic partners, early hires, or potential acquirers.
• NDAs signal that your company takes IP protection and data security seriously — both are big investor priorities.

Investors want to see that your business has solid foundations with the right agreements in place before providing funding, so be as thorough as possible! 

Step 6. Check Compliance and Regulatory Obligations

Having a compelling product or strong traction is not enough — sophisticated investors (such as venture capitalists) want to know that your business is legally compliant and operationally sound. Ignoring legal and regulatory obligations can expose your company to fines, reputational damage, or future deal blockages. To that end, review your compliance and regulatory requirements thoroughly (including industry-specific regulations), consider:

Corporations Act 2001 contains many corporate governance and reporting requirements, as well as rules relating to how to raise money.

Industry-specific regulations (consider, for example, fintech and medtech, where you operate a platform such as SaaS) may potentially fall under the Privacy Act, GDPR, and other privacy laws.

Employment law compliance – including the Fair Work Act 2009 (Cth).

Step 7. Prepare a Data Room

Once you begin engaging with investors, especially institutional ones or venture capitalists, they will request access to a data room. In this secure online repository, they can review your startup’s key documentation as part of their due diligence process.

An adequate data room should be well-organised and easy to navigate:

• Use clear folder structures (e.g. Corporate, Financial, IP, Employment, Commercial Agreements).
• Use descriptive, consistent file names (e.g. “Shareholders Agreement – Executed.pdf” instead of “Doc123.pdf”).
• Data rooms may be divided based on categories of documents, for instance:
• Corporate documents (shareholders’ agreement, constitution, ASIC registration and incorporation documents);
• Capitalisation/fundraising (current and historical cap tables and member registers, SAFE/convertible note documents;
• Intellectual property (any TM applications/certificates/registrations, IP assignment deeds, software license agreements); is your company receiving or using any other company’s IP?);
• Commercial and operational (customer and supplier agreements, stock lists depending on your industry);
• Privacy and security (Privacy policy, terms of use, any NDAs if relevant);
• Employment (employment contracts for key staff, contractors and ESOPs if relevant)
• Financial (profit and loss statements, balance sheets, bank account statements and historical cash flow – any other documentation the investor might reasonably request).
• Tax

Security and data protection are essential for a data room. One way this can be protected is by asking the investors to give you a list of all interested parties and their emails, and you can limit access by password-protecting the data room or only allowing ‘invited participants’ to access.

Step 8. Draft a Term Sheet with Investors

Once you’re in serious conversations with investors for the seed round, a term sheet becomes a crucial tool to align expectations and set the framework for the investment. Although usually non-binding (except for select provisions like exclusivity and confidentiality), it serves as the commercial “handshake” before the lawyers are brought in to draft the full, legally binding documents.

A well-drafted term sheet should cover:

• Investment amount and round valuation (whether it is a pre- or post-valuation);
• Key investor rights (information rights, pre-emptive rights, tag/drag along rights, consent rights);
• Board representation (where an investor requires being appointed as a director);
• Share rights (where investors ask for preference shares with special rights, such as liquidation preferences or conversion rights);
• Deal timeline;
• Conditions for investment; and
• Protections against dilution, if any.

Step 9. Prepare for Due Diligence Before Funding

Investors will conduct thorough due diligence before committing to financing. Be prepared to answer questions about every aspect of your business. Consider the following:

Be transparent—highlight both strengths and potential risks honestly;

Address any gaps in documentation or compliance issues proactively.

Demonstrating a strong governance framework and transparent operations can give investors confidence.

Step 10. Finalise Investment Documents and Close the Seed Round

After successful due diligence and agreement on the term sheet, the final stage is to formalise the seed fund through binding documents, update your corporate records, and issue the shares.

Key documents include:

Subscription Agreement – setting out the terms of the investment, including subscription price, number of shares to be issued, price per share (based on the company’s valuation), conditions precedent (e.g. IP assignments, corporate resolutions), and completion mechanics.

Shareholders Agreement (or Deed of Accession) – the new investor(s) should be added to the existing shareholders agreement via a deed of accession.

‘Housekeeping’ company-secretarial documents, such as:

ASIC Form 484 (lodged with ASIC for an issue of new shares and directors, if applicable);

Board resolutions approving the transaction;

Updated share register; and

Share certificates for each investor.

Conclusion

Raising a seed round is one of the most exciting and vital milestones in a startup’s journey. But it’s not just about pitching the vision — it’s about showing investors that you have the legal, operational, and structural foundations to turn that vision into a thriving business. If done properly, this will be the first priced round of many for your startup – with Series A, B and C to hopefully follow.

By working through the steps in this article, you’re doing more than just ticking boxes — you’re sending a strong message that your startup is investor-ready, risk-aware, and built to scale for the next round of funding.

At UX Law, we’ve helped countless startups and founders navigate their seed rounds and grow their businesses. Whether you’re preparing your cap table, reviewing your IP ownership, or negotiating investor terms, our experienced team is here to guide you through the process.

If your startup is preparing for a seed round, you have questions about seed rounds, or need advice on other business matters, get in touch with our experienced lawyers at UX Law today. (Schedule a free consultation) We’d love to help you lay the foundations that support your next stage of growth.