There is a pattern that plays out in startup fundraising with depressing regularity. A founder gets a warm introduction to an angel investor or early-stage fund. The conversations go well. The investor is interested. Then due diligence starts, and the whole thing stalls — not because the product is wrong or the market is bad, but because the company’s legal foundations are missing or incomplete. No shareholders’ agreement. IP still sitting in a founder’s name. Employment arrangements undocumented. The investor quietly moves on.
The fix is not complicated, but it does need to happen before you start raising. Here are the seven documents every Australian pre-seed startup should have in place before it takes external capital.
1. Company Constitution
Every Australian company registered under the Corporations Act 2001 (Cth) needs a constitution or must rely on the replaceable rules set out in the Act. Most startups should have a tailored constitution rather than relying on the default rules, because the replaceable rules were designed for general commercial companies, not for the specific dynamics of a venture-backed startup.
Your constitution should cover the mechanics of share issuance, transfer restrictions, the powers and procedures of the board, and any special rights attaching to different classes of shares. At the pre-seed stage, you may not need multiple share classes yet — but your constitution should be flexible enough to accommodate them when the time comes.
A common mistake is incorporating with a generic off-the-shelf constitution and never updating it. When investors arrive, they will want to see a constitution that is consistent with the shareholders’ agreement and does not contain provisions that conflict with the deal they are negotiating. Cleaning this up mid-round wastes time and legal fees.
2. Shareholders’ Agreement
If the constitution is the company’s rulebook under the Corporations Act, the shareholders’ agreement is the private contract between the people who own it. It governs the relationship between founders (and eventually investors), covering the things the constitution typically does not: decision-making rights, vesting schedules, what happens when a founder leaves, pre-emptive rights on new share issues, drag-along and tag-along provisions, and dispute resolution.
At the pre-seed stage, a founders’ shareholders’ agreement between the co-founders is the critical document. It does not need to be as elaborate as the shareholders’ agreement that will come with a priced round — the Australian Investment Council (formerly AVCAL) publishes open-source seed-stage templates that provide a reasonable starting point — but it does need to exist.
The two provisions that matter most at this stage are vesting and leaver provisions. If a co-founder departs six months in, the shareholders’ agreement determines whether they walk away with their full equity allocation or whether unvested shares are bought back by the company. Without this document, a departing founder keeps everything, and you have a dead weight on your cap table that will make every future raise harder.
3. IP Assignment Deed
This is the document investors will ask about first, and the one most commonly missing. Intellectual property — the code, the designs, the brand, the algorithms — is usually the most valuable asset a pre-seed startup has. If that IP was created by a founder before the company was incorporated, or by a contractor who was not engaged under appropriate terms, the company may not actually own it.
Under Australian law, the default position is that the creator of a work owns the copyright in it, unless the work was created by an employee in the course of their employment (s 35(6), Copyright Act 1968 (Cth)). Note the qualifier: in the course of employment. If a founder built the prototype on weekends while employed elsewhere, or if a freelance developer wrote the initial codebase, the company does not automatically own that IP.
An IP assignment deed transfers ownership of all relevant intellectual property from each founder (and any early contributors) to the company. It should be broad enough to capture all forms of IP — copyright, patents, designs, trade secrets, and know-how — and it should include a warranty from the assignor that they have the right to assign it.
Do this at incorporation. The cost is minimal. The cost of trying to fix it later, particularly when an investor’s lawyers are asking pointed questions about IP ownership, is not.
4. Founder Employment or Services Agreements
Founders often skip formal employment agreements on the basis that they own the business and do not need a contract with themselves. This misunderstands the purpose of the document. A founder employment agreement is not about employment protections — it is about defining the terms of the founder’s engagement with the company in a way that supports IP ownership, confidentiality, and restraint obligations.
A well-drafted founder agreement should include:
- IP assignment and moral rights waiver. Everything the founder creates in the course of their work for the company belongs to the company.
- Confidentiality obligations. Information learned during the course of employment remains confidential, even after the founder leaves.
- Non-compete and non-solicitation clauses. These are harder to enforce in Australia than in some other jurisdictions — the restraint of trade doctrine requires that any restriction be reasonable — but having them in place gives the company a starting point.
- Role, responsibilities, and remuneration. Even if the founder is taking a nominal salary, documenting it avoids disputes later.
The Australian Investment Council’s seed-stage template suite includes a founder employment agreement for exactly this reason. Investors want to see that every person contributing to the company is bound by terms that protect the company’s IP and confidential information.
5. Vesting Schedule
Vesting is often documented within the shareholders’ agreement, but it is important enough to warrant separate attention. A vesting schedule ensures that founders earn their equity over time rather than receiving it all on day one. The standard in the Australian startup ecosystem is four-year vesting with a one-year cliff — meaning a founder earns nothing for the first twelve months, then vests monthly (or quarterly) over the remaining three years.
Why does this matter before raising? Because investors will insist on it, and retrofitting vesting onto an existing share allocation is significantly more complicated than putting it in place from the start. If two founders each hold 50% of the company with no vesting, and one leaves after three months, the remaining founder is left running the business while the departed founder retains half the equity. No investor will fund that situation.
If you have already issued shares without vesting, it is not too late — but it requires the departing (or unvested) shares to be bought back or subjected to a new restriction, which means shareholder consent and potentially stamp duty. Far simpler to get it right at the beginning.
6. Cap Table
A cap table is not a legal document in the traditional sense — it is a spreadsheet. But it is the single most important reference document you will share with investors, and if it is wrong, everything else falls apart.
Your cap table should record every share that has been issued, to whom, at what price, and any options, convertible instruments (SAFEs, convertible notes), or other rights that could result in future share issuance. At the pre-seed stage, this should be straightforward: the founders’ shares, any shares issued to early advisors or employees, and any outstanding convertible instruments.
The cap table must reconcile with your ASIC records (Form 201 at registration, and any subsequent Form 484 lodgements notifying changes to share structure) and with your share register. Discrepancies between your cap table, your share register, and your ASIC filings are a red flag in due diligence. An investor who finds inconsistencies will assume that if you cannot track your own ownership structure, you probably have other governance gaps as well.
Keep it simple, keep it current, and keep it accurate. There are free cap table tools available (Carta, Airtable templates, even a well-maintained Google Sheet), but the tool matters less than the discipline of updating it every time shares are issued or transferred.
7. Privacy Policy and Terms of Service
If your startup has a product — even a beta or an MVP — it almost certainly collects personal information from users. Under the Privacy Act 1988 (Cth), Australian businesses with an annual turnover of more than $3 million are required to comply with the Australian Privacy Principles (APPs), including having a clearly expressed and up-to-date privacy policy. But even if your startup falls below that threshold today, there are good reasons to have these documents in place now.
First, the turnover threshold is widely expected to be removed or lowered under the ongoing Privacy Act reforms, and businesses that have never thought about their data practices will need to catch up quickly. Second, many enterprise customers and partners require a privacy policy as a condition of doing business. Third, investors will look for it — not because they are privacy lawyers, but because a missing privacy policy signals a founder who has not thought about compliance.
Your privacy policy should describe what personal information you collect, how you collect it, why you collect it, who you share it with, and how users can access or correct their data. Your terms of service should define the relationship between your company and its users, limit your liability, set out acceptable use rules, and specify the governing law and jurisdiction.
These documents do not need to be perfect at the pre-seed stage. They do need to exist, and they need to be broadly accurate. A placeholder or a copy-paste from another company’s website will not cut it — and may actually increase your legal risk if it contains commitments you are not meeting.
Getting Started
The seven documents above represent the minimum viable legal stack for a pre-seed startup preparing to raise. None of them is particularly expensive to put in place, and most can be adapted from standard templates — the Australian Investment Council’s open-source seed documents are a solid starting point for the shareholders’ agreement, employment agreement, and IP assignment deed.
The important thing is to do it early. Every one of these documents becomes harder and more expensive to implement after you have taken on investors, issued additional equity, or built a team. A founder who walks into an investor meeting with clean legal foundations signals competence and seriousness. A founder who has to explain why the company does not own its own IP, or why there is no shareholders’ agreement between co-founders who are already disagreeing about direction, signals risk.
Get the basics right. It is the cheapest insurance your startup will ever buy.
If you need help putting these documents in place or reviewing what you already have, get in touch.
