Explore whether to issue shares immediately or defer via an ASA. Understand key trade-offs, risks, and benefits to make the right call for your startup.

Should startups issue shares immediately or delay with an advance subscription?

Jonathan Lea October 21, 2025

Key considerations & trade-offs for founders

When founders take in investment, one of the tactical decisions is when to convert that investment into shareholdings. In practice, you often see two broad approaches:

Immediate issuance under a subscription agreement (ordinary subscription)
Deferred issuance via an advance subscription agreement (ASA) / “pre-paid shares”

Each route has pros, cons, and structural nuances. The right choice depends on your stage, valuation uncertainty, tax relief regimes, investor appetite, dilution sensitivity and the administrative burden you can absorb.

Below, we explore the main considerations and a side-by-side benefit/risk comparison. We also explain common terminology.

Terminology & mechanics

Before comparing, it helps to fix some vocabulary:

Ordinary subscription / subscription agreement / priced round: the investor subscribes for shares at a fixed price per share, the shares are issued soon (or immediately), and all documentation (valuation, shareholder rights, corporate structure) is agreed at that time.
Advance Subscription Agreement (ASA): the investor pays money up front (subscribes now) but the actual shares are issued later (on a “trigger event” such as a future equity round or at a longstop date). The investor receives rights to be allotted shares at that later point.
SeedFAST: SeedLegals’ branded version of an ASA, designed to be SEIS/EIS-friendly and founder-friendly.
Longstop date: a backstop deadline by which shares must be issued if no funding round triggers earlier conversion.
Discount / discount rate: to compensate the early investor for risk, their conversion price will often be discounted relative to the price in the triggering round.
Valuation cap / floor / low valuation: caps (or floors) place a limit on the effective price at which the investment converts, to protect investors from excessive dilution if the next round values the company extremely high (or low).
Qualifying funding round / trigger event: an equity round or other defined event that causes conversion of the ASA into shares.
Pre-emption rights / directors’ authority to allot: when shares are issued, statutory or contractual rights of existing shareholders may arise (right of first refusal), and the board must have power to allot those shares. These issues also affect both immediate and deferred issuance.
SEIS / EIS compatibility: structuring matters to ensure that investor subscriptions qualify for the UK’s Seed Enterprise Investment Scheme or Enterprise Investment Scheme tax reliefs. ASAs are often drafted to retain SEIS/EIS eligibility.

Note that because SeedFAST is commonly known in the UK early-stage ecosystem, most founders will come across it; it behaves essentially as an ASA but with market-standard protections and constraints built in.

When you might favour immediate share issuance

Below are some situations or motivations that push toward issuing shares at the time of investment, i.e. in a priced subscription.

Certainty of ownership & clarity: When you issue shares immediately, cap table consequences, rights, dilution and control are all fixed and transparent at that moment. There is no ambiguity about what the investor will own, and you avoid later disputes over conversion mechanics or valuation adjustments.

Simplified investor expectations: Some more sophisticated investors e.g. institutional funds or those accustomed to priced rounds – may prefer the certainty of immediate share issuance, clear rights and immediate governance participation. If your investor is not comfortable with deferring the share issue, you may be forced into immediate issuance.

Avoiding conversion mechanics risk: A deferred structure introduces complexity: you must negotiate discount rate, valuation caps, longstop mechanisms, fallback provisions etc. Each of those terms is a point of potential negotiation (and conflict). If you are confident in valuation and wish to avoid that complexity, immediate issuance is cleaner.

Regulatory, corporate housekeeping, and timing: Issuing shares immediately means you complete the allotment, issue share certificates, and file the necessary returns to Companies House. That triggers immediately your statutory obligations (e.g. share register updates, shareholder rights). If you prefer to “get it all done now” rather than leave something to future burdens, that may be attractive.

Investor confidence and optics: An investor may perceive immediate issuance as a stronger commitment, less contingent complexity, and fewer “moving parts.” That confidence might be helpful if you are negotiating with strategic or institutional investors who want clarity.

When you might favour deferred issuance via ASA

There are significant reasons why many startups prefer to delay issuing shares (i.e. convert later via an ASA or ‘SeedFAST’). Below are key benefits, along with risks and mitigations.

Benefits of deferral

Valuation flexibility & deferred negotiation

Early-stage companies are notoriously hard to value. By taking investment via an ASA rather than locking in a valuation immediately, you postpone that negotiation until you have more traction, metrics or investor confidence — thereby often achieving a more favourable valuation later.

Speed and lower legal overhead

An ASA tends to be a simpler agreement (fewer ancillary documents, shorter negotiations) than a full priced round with a full shareholders’ agreement, side letters, protective provisions, etc. That means you can often get funds in faster with lower legal cost.

SEIS / EIS tax relief compatibility

Because of UK tax law, convertible debt or complicated investor protections may jeopardise eligibility under SEIS/EIS. An ASA can preserve those tax incentives, provided certain constraints are respected (no interest, no repayment rights, limited investor protections, timely issue).

Incentive alignment & reward for early risk

By giving a discount or valuation cap, early investors are rewarded for taking higher risk. That incentive helps attract early capital. If your company grows substantially before conversion, the investor will benefit proportionally, but the cap/discount ensures dilution isn’t excessive for founders.

Administrative flexibility

You retain flexibility in subsequent rounds because fewer issues are pre-locked. For example, you might adjust deal terms (classes of shares, protective rights) in your priced round without being constrained by earlier share issuance terms. You also reduce the risk of having to renegotiate or unwind early shareholdings.

Risks and challenges with deferral

While deferral has advantages, there are also notable risks and complications. Founders must be alert to these and build mitigations into their documents.

Dilution uncertainty and downside surprises

Because the conversion terms (discounts, caps, fallback valuation) are negotiated ex ante, there is a risk that in hindsight the investor’s conversion is too favourable (i.e. founder dilution is heavier than anticipated). Founders must carefully model outcomes, stress test for high valuations or down rounds, and judiciously set caps/floors/discounts.

Complexity and negotiation friction

Deferred issuance instruments introduce more terms and optionality: you must define trigger events, fallback mechanics, per-share rights, conversion adjustments, anti-dilution, etc. This can add negotiation complexity and delay, especially if investors push for additional protections.

Risk of non-conversion or failure of trigger

If the defined trigger event (e.g. qualifying funding round) never occurs, you must rely on fallback conversion at longstop or alternative mechanisms. If those fallback terms are badly drafted or contested, disputes or misalignment may arise. Founders must ensure that fallback conversion is fair, clear and enforceable.

Tax / regulatory compliance risk (SEIS/EIS pitfalls)

Because HMRC scrutinises ASAs to ensure they do not function as quasi-debt or lend investor protections that undermine “at risk” equity status, there is a risk of losing tax relief eligibility if the structure is flawed. The more complex or long the deferred period, the more risk of non-qualification.

For example, HMRC’s own guidance warns that the more complex the agreement or the longer the delay, the greater the risk that EIS relief may not be allowed.

Signalling & investor perception

Some investors may view a deferred share scheme as containing too many contingencies or lacking commitment. They may demand more protective rights, which erodes founder control or increase friction. Also, existing investors or later ones may be wary of a hidden “waterfall” of conversion rights.

Governance, rights and allocation complexity

After conversion, the investor’s shares will often receive the same rights (voting, protections, etc.) as the new round investors. But reconciling the rights and aligning terms can be administratively and legally tricky (e.g. if the convertible rights grant anti-dilution or other protections). Founders must ensure the conversion mechanism ensures consistent share class rights integration into the later round.

Comparative benefit / risk summary (Immediate vs Deferred)

Feature / Risk	Immediate issuance (subscription now)	Deferred issuance (ASA)
Certainty of shareholding, rights & cap table	High — you know exactly who owns what	Medium — subject to conversion mechanics and future events
Valuation negotiation timing	Must negotiate up front	Deferred until more data / traction
Legal/documentation complexity	Higher upfront (shareholders’ agreement, etc.)	Lower initially (more work deferred)
Dilution risk control	Directly managed at issuance	Controlled via discount, valuation caps, fallback terms
SEIS/EIS compatibility risk	Simpler (if structured properly)	Requires careful drafting to retain eligibility
Speed to funding	Potentially slower (due diligence, investor negotiation)	Faster — simpler agreement, fewer deal hurdles
Flexibility for future rounds	Constrained by prior commitments	Greater flexibility in structuring future rounds
Investor comfort / perception	Clear and conventional	Some investors may push back or demand additional protections

In essence: if your valuation is relatively clear, your investor comfortable, and you wish to lock in terms now, the subscription route may be more appropriate. If you prefer flexibility, want to delay valuation risk, and want faster access to capital with fewer hurdles, deferral via ASA may win out — albeit at the cost of negotiation over conversion terms and potential dilution risk.

Practical considerations & structuring tips

Below are some more concrete points to watch when choosing and implementing either route.

Design your trigger events and fallback carefully: For an ASA, you should define a qualifying funding round threshold (e.g. the minimum aggregate raise amount) that triggers conversion; and also a longstop date (e.g. 6 or 12 months) after which the conversion happens regardless. The fallback valuation or discount at the longstop must be reasonable and not overly advantageous to investors.
Use valuation caps and discount boundaries: To protect both parties, many agreements combine a discount (e.g. 10–20 %) plus a valuation cap so that if the company’s valuation rockets at the next round, the investor’s effective price is bounded.
Ensure board capacity to allot and share rights: Even if shares are deferred, the board must have the power to allot those shares later; and you must ensure that pre-emption / shareholder rights (statutory or contractual) are addressed in your articles or shareholder agreements.
Model post-conversion dilution scenarios: Run sensitivity models (best case, base case, downside case) for how much equity you’ll retain under differing growth assumptions, conversion caps, upcoming raises, option pools etc. That helps you negotiate discount or cap terms in an informed way.
Limit the deferred period and avoid open-ended conversion: A deferral term that’s too long (or indefinite) increases risk and ambiguity. Many UK ASAs use six-month to 12-month longstop periods.
Align rights across the conversion and subsequent share class: Ensure that, upon conversion, the investor’s shares slot cleanly into the same share class and rights (voting, liquidation, protective provisions) as the round into which they convert, so that later governance is not fragmented.
Keep SEIS / EIS in mind from the start: If delivering SEIS/EIS compatibility is important to your investors (especially angel or early-stage investors), ensure your ASA does not include features that compromise “at risk” equity status — e.g. interest, redemption, too many side protections, or open-ended variation clauses. HMRC is sensitive to overly elaborate constructs.
Use a well-tested template or platform: Using a standard, market-accepted instrument (as any law firm experienced in this area will be familiar with and use as a basis) reduces friction and investor scepticism, because many investors are already familiar with or comfortable with these templates.

Concluding remarks: which route fits which founder?

There is no one-size-fits-all answer. The right path depends on your circumstances, investor expectations, growth trajectory, and risk appetite.

If you believe your valuation is defendable now, want to simplify later rounds, and prefer certainty, issuing shares immediately may make sense.
But if you wish to preserve optionality, delay valuation risk, move quickly to raise funds, and accommodate investors seeking tax relief under SEIS/EIS, then an ASA is often the better choice — provided the conversion terms are carefully negotiated and drafted.

At The Jonathan Lea Network, we advise founders to (i) run numerical models of dilution under different scenarios, (ii) consider investor comfort with deferred structures, (iii) tailor the trigger, discount, cap and fallback mechanics carefully, and (iv) ensure compliance with SEIS/EIS if required.

If you are weighing a real transaction, we would be pleased to assist in reviewing the draft terms, modelling outcomes, and advising on the optimal structure guided by market practice.

Please email wewillhelp@jonathanlea.net providing us with any relevant information ensuring that any call we have is as productive as possible or call us on 01444 708640. After this call, we can then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information mentioned on the call.

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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.