The 8 legal mistakes killing half of all startups 🪦

The legal blind spots that cost founders everything

Aug 14, 2025

In the early days of a startup, everything’s on fire. You’re pouring every ounce of focus into building the product, winning your first customers, and keeping the lights on.

That’s when the big, silent killers slip through: the legal blind spots you don’t notice until they cost you investors, control, or the company itself.

I revisited my conversation with Michael Buckworth, a mergers-and-acquisitions lawyer turned startup specialist, who’s spent over a decade guiding unicorns and early-stage founders through make-or-break moments.

As founder of Buckworths, the UK’s only dedicated startup law firm, and author of Built on Rock, Michael has seen every kind of mistake and knows exactly which ones sink companies.

Here are the eight legal mistakes he says wipe out half of all startups, and the real-world scenarios that show how quickly they can turn from “small oversight” to “company-ending problem.” 👇🏻

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These legal mistakes are startup killers

The legal minefield buried in your startup. *Illustration: ImageFX/MM*

1️⃣ No shareholder agreement

Two friends launch a SaaS platform. It’s going well until six months in, one burns out and leaves. They still own 50% of the company and can block every decision, from raising investment to hiring, because there’s no shareholder agreement setting out what happens in a split. Michael has seen these disputes spiral into year-long standstills, scaring off investors and costing tens of thousands in legal fees. Without clauses on exits, decision-making, and equity transfers, you’re gambling the company’s future on friendship.

2️⃣ No vesting

A co-founder quits in month 10 and takes their 30% equity with them, moving to Bali while you keep grinding. Every investor you meet asks the same question: “Why are they still on the cap table?” Michael says a simple four-year vesting schedule would have prevented dead equity, ensuring founders earn their stake over time so those who leave early don’t keep a disproportionate slice of the pie.

3️⃣ No IP rights

You pay an agency £20k to build your app MVP, only to discover a year later, when you switch developers, that they own the code. They demand a £15k “handover fee” for the rights. Michael says this happens more often than founders realise, because paying for development doesn’t automatically transfer intellectual property. Without a signed IP assignment, you don’t legally own your own product.

4️⃣ Ignoring compliance

Your healthtech app is growing fast. You’re mid-fundraise when the regulator steps in: you never completed the required data protection registration. Overnight, the service is shut down and the deal collapses. Michael has seen fintech, healthtech, and crypto startups ignore licensing requirements as “admin” until it’s too late. The right approvals aren’t a nice-to-have, but your licence to operate.

5️⃣ Copy-paste contracts

You grab a SaaS contract template from Google or ChatGPT. It’s written for the US, references American law, ignores GDPR, and contains clauses irrelevant to your business. Six months later, a customer dispute heads to court and your contract is unenforceable. Michael’s seen these “paper shields” crumble fast, leaving founders exposed legally and reputationally.

6️⃣ No alignment with investors

You want to grow steadily over a decade. Your lead investor expects a three-year exit and starts pushing for aggressive cuts, risky pivots, and strategies that go against your vision. Michael says many disputes aren’t about the law itself, but about mismatched expectations. Locking growth timelines and exit goals into your agreements makes boardroom wars less likely.

7️⃣ Messy hiring

You bring on your first team without proper contracts. Two years later, a former employee claims unpaid holiday and benefits. In the UK, statutory employment obligations apply from day one, and without paperwork, you’re liable. Michael warns that founders who rely on handshake deals risk expensive back-pay claims and tribunal battles.

8️⃣ Bad fundraising terms

You’re thrilled to land your first £250k and sign without scrutinising the fine print. It turns out the investor has preference shares and control rights that require their approval for every decision, from hiring to spending. Michael says he’s seen founders trapped by these terms, losing both equity and control in a single deal, with no way to reverse it.

👉🏻 For a deeper dive into these pitfalls, and how to avoid them, watch my full conversation with Michael Buckworth on Millennial Masters, or grab his book Built on Rock for the complete legal playbook for founders.