Guidance

Track 2: Legal Considerations for Raising Equity Finance

Published 2 December 2025

STRENGTHING LEADERSHIP AND GOVERNANCE 

KEY LEGAL CONSIDERATIONS FOR RAISING EQUITY FINANCE 

This document provides a general overview from a legal perspective of the UK legal and regulatory framework for equity fundraising by startups. This list of considerations is not intended to be exhaustive. 

The considerations set out herein are governed by English law and are only appropriate for private limited companies registered (or to be registered) in England and Wales. While every effort has been made to ensure the information is accurate and up to date as of 1 October 2025, UK legislation and Financial Conduct Authority (FCA) rules are subject to change. In particular, the financial promotion regime and prospectus requirements are currently under review, and further updates may be introduced in the near future. 

It is not possible to provide comprehensive advice on the matters that may apply in the particular circumstances of your business. This document does not constitute legal advice and should not be relied upon as such. 

Users are strongly advised to seek independent legal advice before undertaking any further action. 

1. Offers to the public 

Before any offer is made by a start-up company, the scope and extent of the offering should be assessed to ensure that these restrictions are not triggered. Ideally any offer should be targeted only at specific individuals (whether it be professional investors or friends and family) rather than the general public. 

General prohibition on limited companies making offers to the public 

Pursuant to section 755 of the Companies Act 2006 (CA 2006), a private limited company must not offer shares of the company to the public. Under the CA 2006, an offer is not regarded as an offer to the public if it can properly be regarded in all the circumstances as: 

• not being calculated to result, directly or indirectly, in the shares of the company becoming available to persons other than those receiving the offer; or 

• otherwise being a private matter between the company and the recipient of the offer (this is often the case when an offer is made to a person who has a connection with the company or one of its founders (which includes existing members and employees of the company and their family). 

Requirement to prepare a prospectus 

Pursuant to section 85 of the Financial Services and Markets Act 2000 (FSMA), it is unlawful for a company to offer transferable securities (i.e. shares) to the public unless a prospectus approved by the FCA has been prepared. Breach of section 85 is a criminal offence. 

Under FSMA, there is an offer of transferable securities to the public if there is a communication to any person, by any means, which presents sufficient information on the transferable securities to be offered and the terms on which they are to be offered to enable an investor to decide to buy or subscribe for the securities in question. The communication can be in any form and by any means. 

There are a number of exemptions commonly used by start-up companies seeking equity financing: 

• the offer is made to or directed at qualified investors only (e.g. venture capitalists and business angels, and other persons regulated by the FCA); 

• the offer is made to or directed at fewer than 150 natural or legal persons in the United Kingdom, other than qualified investors; 

• the offer has a denomination per unit which amounts to at least EUR100,000; 

• the offer of securities is addressed to investors who acquire securities for a total consideration of at least EUR100,000 per investor, for each separate offer; and 

• the total amount being raised from investors in the UK is less than EUR8,000,000 (calculated over a period of 12 months). 

If you are seeking equity financing outside of the UK, please do consider any other relevant regulatory restrictions which may apply - you may need to seek local law advice. 

2. Financial Promotion 

Prohibition under section 21 FSMA 

Even if the shares can be offered without the need to issue a prospectus (see above), this does not mean that the offer will fall outside the scope of all regulatory requirements. Specifically, the financial promotion regime contained in FSMA needs to be considered. 

Under section 21 of FSMA, any communication which invites or induces a person to engage in investment activity is a financial promotion and, unless the person is an authorised firm, or the communication is exempt or approved by a FCA or PRA registered firm, it is a criminal offence to make such a communication and any agreement entered into in breach of this provision is unenforceable as against the other person entering into it. 

The provision of a business plan, an executive summary of the company and its business and/or any other materials provided by a company or a founder to elicit investment is likely to be classified as a financial promotion. The person must invite/induce engagement in an investment activity (“controlled activities” which require authorisation from the FCA or PRA). Selling shares, including investment based crowd-funding, is considered to be an investment activity. 

The prohibition under section 21 of FSMA will apply regardless of the amount of investment sought from investors. A communication can count as a financial promotion whether it was solicited and in real time or not. 

Becoming an authorised firm or obtaining approval by a FCA or PRA registered firm (such as an investment bank or an IFA) is not likely to be feasible for a start-up as it may be expensive and impractical. 

A common approach taken by start-ups seeking investment is to rely on the statutory exemptions set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO), as described below. Given that non-compliance is a criminal offence, any person making a financial promotion should ensure that such communication does fall within a particular exemption before it is relied upon and the communication made. If you are in any doubt, legal advice should be sought before making any communication. 

Terminology 

FSMA and the FPO contain a number of key terms that are relevant when determining whether an exemption applies. A communication is: 

• “made to” a person if it is addressed to a particular person (e.g. where it is contained in a telephone call or letter); 

• “directed at” another person if it is addressed to persons generally (e.g. where it is contained in a television broadcast or website); 

• “real time” if it is made in the course of a personal visit, telephone conversation or other interactive dialogue. All other types of communication are “non-real time” communications (e.g. letters and other forms of correspondence); and 

• “solicited” if it was initiated by the recipient or takes place in response to an express request from the recipient. All other communications are regarded as unsolicited. 

Disclaimers 

It is advisable for any communications to include a disclaimer on the front page to the effect that it is only communicated to a specific class of recipient falling within one of the exemptions (and a disclaimer is mandatory in order to fall within certain FPO exemptions). Whilst the communication still needs to fall within the scope of an exemption, the disclaimer may assist in establishing that the terms of the financial promotion regime have been complied with. 

It should also be stated that any recipients who do not fall within that specific class should return the document to the sender. 

Exemption: high net worth individuals (Business Angels) 

Any communication made to certified high net worth individuals will not require approval. In order to rely on this exemption, the relevant communication must: 

• be a non-real time or a solicited real time communication; 

• be made to an individual whom the person making the communication believes on reasonable grounds to be a certified high net worth individual. 

A certified high net worth individual means a person who has signed, within the period of 12 months ending with the day on which the communication is made, a statement certifying that they are a high net worth individual (i.e. that they have an annual income of at least GBP100,000 in the previous financial year or had net assets, excluding their main home, life insurance and any pension funds, of at least GBP250,000. 

A person would have reasonable grounds to believe that a person falls into this exemption if they had sight of the relevant certificate(s) certifying that the individual is a high net worth individual before making the communication. 

Exemption: self-certified sophisticated investors 

Any communication made to a person whom the person making the communication believes on reasonable grounds to be a self-certified sophisticated investor will not require approval. In order to rely on this exemption, the relevant individual must: 

 - Sign a self-certification statement (valid for 12 months) confirming they meet at least one of the following criteria: 

  - Member of a business angel network for more than six months, and are still a member. 

  - Director of a company with an annual turnover of at least £1 million in the last two years. 

  - Worked in a professional capacity in private equity, or in the provision of finance for small and medium enterprise for at least two years. 

  - Made two or more investments in an unlisted company in the last two years. 

Exemption: one-off communications 

There is an exemption for one-off non-real time or solicited real time communications which are made rather than directed at persons which applies if the communication meets all of the following three conditions: 

• the communication is made only to one recipient or only to a group of recipients in the expectation that they would engage in any investment activity jointly (such as family members); 

• the identity of the product or service to which the communication relates has been determined having regard to the particular circumstances of the recipient; and 

• the communication is not part of an organised marketing campaign. 

In any other case in which one or more of those conditions are met, that fact is to be taken into account in determining whether the communication is a one-off communication (but a communication may still be regarded as a one-off communication even if none of the conditions is met). 

There is an additional exemption for one-off unsolicited real time communications where, in addition to the three conditions noted above, the communicator believes on reasonable grounds that the recipient understands the risks involved in engaging in the activity being promoted and expects to receive the communication in relation to the relevant investment activity. It will be difficult to be sure that these further conditions are satisfied so it may be desirable to obtain formal consent to real time communications wherever possible. 

The exemptions for one-off communications are subjective in nature and a company/founder should therefore only seek to rely on these exemptions when absolutely necessary and on the basis that the company/founder has complete confidence that the conditions are met. 

If there is any doubt, reliance on these exemptions should be avoided and/or formal legal advice should be sought. 

3. Liability for misleading statements 

It should be noted that, in addition to the requirements set out above, liability for misleading statements can arise under English law in several ways. 

Financial Services Act 2012 

A criminal offence may be committed under section 89 of the Financial Services Act 2012 (FSA) if false or misleading information is published which may induce another person to buy or refrain from buying the shares. This applies regardless of whether the prospectus requirements (referred to above) apply. 

Under FSA, the offence may be committed even where a person did not intend to publish false or misleading information or to influence a person’s investment decision. The offence can also be committed if material facts are dishonestly concealed. 

If Section 89 is contravened a person may be liable to a maximum of seven years’ imprisonment or to a fine or both. 

Breach of contract 

If an investor can demonstrate that he bought shares in reliance on a false or misleading pre-contractual representation for which the company is responsible he may be able to bring a claim against the company under the law of misrepresentation unless liability is clearly and properly excluded. 

Misstatement 

Where a person relies on a misstatement of fact made by the company or any of its directors to buy shares and suffers a loss as a result of the misstatement, and such misstatement was negligently made, a civil action for negligence may arise to recover damages for such loss. Civil liabilities may also arise in respect of a fraudulent statement of fact or under the law of deceit.

This information is a non-exhaustive summary of some of the factors which may be relevant to seeking investment in the space sector. Persons should take independent legal and professional advice before seeking any such investment.