Latest Blogs

Five DIY Legal Mistakes Start-Up Founders Should Avoid

MBM Commercial

30 Dec 2025

Launching a start-up is thrilling, but it also comes with serious legal responsibilities. From choosing the right company structure to securing intellectual property, early missteps can lead to costly consequences. Many entrepreneurs try to cut corners or take a “do-it-yourself” approach to legal setup, which can backfire if not done correctly.

If you are forming a new UK company, avoiding these five common legal mistakes will help protect your business and prevent future headaches.

1. Failing to Maintain a Register of Members

The register of members is a statutory requirement under the Companies Act 2006 (s113). It records who legally owns shares in your company.

Why it matters:

It is prima facie evidence of share ownership.
Share transfers are only legally recognised once the transferee is entered into the register.
Without it, your company may struggle to prove ownership; affecting voting rights, dividends and sale valuations.
Failure to maintain the register can result in criminal liability and fines for the company and its officers.

This register must be kept up to date and available for inspection at the company’s registered office or designated location.

2. Transferring Shares Without a Stock Transfer Form

Shares in a private company cannot be transferred informally. A stock transfer form or other instrument of transfer is required to document the transaction.

Key points:

The form must include details of the transferor, transferee, class and number of shares being transferred and consideration.
It must be submitted to HMRC for stamp duty assessment if applicable.

The company must update the register of members to reflect the transfer.

Without this process, the transfer may be invalid or unenforceable, leading to potential ownership disputes.

Always ensure share movements are properly documented and compliant with UK company law.

3. Buying Back Shares Without Proper Funding

A buyback of shares is regulated by the Companies Act 2006 (ss690–708) which sets out how it may be funded and the required procedure.

Shares must be fully paid and bought back in cash at completion. Companies must file forms SH03 and SH06 with Companies House and pay stamp duty if applicable.

Permitted funding methods:

Distributable reserves: Accumulated profits minus legal reserves and dividends paid.
Capital: Under Chapter 5 or the de minimis exemption (up to £15,000 or 5% of share capital per financial year).
Proceeds from a fresh share issue: Used specifically to fund the buyback.

Why it matters:

Improper funding or failure to follow the correct procedure can render the buyback void, and the directors potentially personally liable.

4. Not Securing Intellectual Property (IP) Ownership

Founders often assume that anything created for the company automatically belongs to it, but this is not necessarily the case under UK law.

What to watch out for:

Work created by freelancers or co-founders who are not employees is not automatically owned by the company. IP assignments should be obtained to transfer ownership.
Without legal title, the creator of the IP could demand ownership rights, claim royalties or block use of your logo, software or technology.
This may jeopardise investment, valuation and exit strategies.

Protecting IP is essential for long-term growth, brand integrity and legal compliance.

5. Using AI Tools to Draft Legal Agreements

Generative AI has many uses, but it should not solely be relied on to draft core legal documents such as shareholders’ agreements or articles of association.

Why it’s risky:

AI tools often pull from multiple jurisdictions, mixing incompatible legal concepts and may not interpret UK law correctly or contextually.
AI tools are not qualified legal professionals and have no liability if the document is flawed..
AI-generated documents may contain inaccuracies, inconsistencies or fabricated clauses.
Sensitive company data fed into AI platforms may pose data privacy risks.

Drafting accurate and enforceable legal documents requires precision, expertise in UK corporate law and tailored advice.

Conclusion

Early-stage legal decisions shape the long-term sustainability of your business. Cutting corners or relying on DIY solutions can lead to increased costs, delays and potential disputes. By addressing these key areas with the help of legal professionals, you build a stronger, safer foundation for your company.