Raising Your First Round Into an Estonian OÜ: SAFEs, Convertibles and Share Capital Increases
A SAFE does not simply drop into an Estonian OÜ the way it drops into a Delaware C-corp, because Estonia has no concept of authorized-but-unissued stock and every euro of capital has to be accounted for in the commercial register, not just in a side letter. If you are about to take your first outside cheque, the mechanics you actually need are a share capital increase, a decision on where the money sits before shares exist, and a plan for share premium. None of this is exotic, but it is unfamiliar if your reference point is US startup content, and getting the sequence wrong costs weeks with a notary and your lawyer, not minutes with a template.
The short answer
An Estonian OÜ raises equity by increasing its share capital, which requires a shareholder resolution and registration with the e-Business Register (ariregister.rik.ee) — there is no separate class of unissued shares waiting on a cap table.
The minimum share capital is €0.01 per shareholder, so the legal floor is trivial, but the paperwork that governs who owns what is not — a real cap table still needs articles, resolutions and a shareholders’ agreement.
Money can sit in the company before shares are formally issued, typically as a shareholder loan or a prepayment against a future capital increase, but it is not equity until the increase is registered.
Share premium (ülekurss) is how you charge an investor more than the nominal value of the shares they receive — the nominal value stays tiny while the premium carries the real investment.
A US-style SAFE is not a recognized instrument under Estonian company law; founders typically adapt it into a convertible loan agreement with Estonian-law mechanics, or use a Startup Estonia model document built for this jurisdiction.
Whether a share transfer needs a notary depends on the articles of association — companies with at least €10,000 of fully paid-up share capital can unanimously adopt articles that waive the notarial requirement, otherwise the default notarial form applies.
New shares and a new option pool dilute the same cap table, so sequencing an option pool before or after a round changes who actually pays for it.
What does raising money into an OÜ actually involve?
Raising money into an OÜ almost always means increasing the company’s share capital and issuing new shares to the investor, because Estonian company law does not let you keep a pool of pre-authorized, unissued shares on standby the way a Delaware corporation can. Every share that exists has to correspond to a registered amount of share capital, tied to a specific shareholder, recorded in the share capital increase decision and ultimately reflected in the e-Business Register. That is the structural fact that surprises founders coming from a US playbook: there is no moment where the company “has” authorized shares sitting around waiting to be sold. Whatever you agree ends up visible in the e-Business Register, which is the first place an investor checks.
In practice this means every priced round, and every conversion of a convertible instrument, runs through the same three-step sequence: a shareholders’ resolution approving the increase and the new shareholder, the contribution (the investor’s money, in cash or occasionally in kind), and registration of the new share capital amount and shareholder with the register. Until that last step happens, the investor is a creditor or a party to a contract, not yet a shareholder of record.
Who decides and how fast does it move?
The shareholders decide, and the required majority is normally set out in the articles of association — many OÜs require a two-thirds majority for a share capital increase unless the articles say otherwise, but existing shareholders typically have pre-emptive rights that need to be waived for a new investor to come in cleanly. Once the resolution is signed and the money is in, the change can reach the register within days if the paperwork is clean, but it is not instant the way opening the company itself can be — a first-time increase involving a new investor usually needs a lawyer to draft the resolution correctly and to confirm the notarial requirements for your specific articles.
Instrument | Speed to close | Legal / notary cost | When dilution happens | Paperwork involved |
|---|---|---|---|---|
Priced equity round | Slower (weeks) — full valuation negotiation and drafting | Higher — articles amendment, SHA, possibly notary | Immediately — new shares issued and registered now | Resolution, subscription agreement, SHA, register filing |
Convertible loan (Estonian-adapted) | Faster (days to a couple of weeks) — simpler agreement, valuation deferred | Moderate — one adapted agreement, pre-emptive rights waiver | Deferred — dilution happens at the future conversion event | Loan agreement, pre-emptive rights waiver, later a share capital increase |
Shareholder loan (bridge, no conversion terms) | Fastest — can be a simple written agreement | Low — no articles change needed to receive it | None until/unless later converted to equity | Loan agreement, board/shareholder note, accounting entry |
How does a share capital increase reach the commercial register?
A share capital increase reaches the register through a formal filing that follows the shareholders’ decision, and it is not registered automatically just because the money arrived in the company’s account. The board (or the shareholders directly, depending on how the articles allocate this) submits the increase decision, evidence of the contribution, and — where the increase changes the articles — an updated version of the articles of association, to the e-Business Register. The register examines the filing and, once accepted, the new share capital figure and the new shareholder appear in the public register, which is what makes the investor’s ownership legally certain and visible to third parties such as banks.
For a cash contribution, the increase generally requires proof that the money has actually reached a company account before or alongside the filing. For a non-cash (in-kind) contribution — for example, an investor contributing IP or hardware instead of cash — Estonian law requires the value to be properly substantiated, which typically means more documentation and, above a certain size, an auditor’s assessment. Founders taking their first outside cheque should assume cash, keep it simple, and leave in-kind contributions for a later, more sophisticated round.
Shareholders adopt the increase resolution (and waive pre-emptive rights for the new investor, if applicable).
The investor transfers the contribution to the company’s bank account.
The board (or shareholders) prepares the filing, including any articles amendment.
The filing goes to the e-Business Register together with supporting documents.
Once approved, the register shows the new share capital and the new shareholder — this is the moment the investment becomes a share, not just a promise.
Can money sit in the company before shares are issued?
Yes, money can sit in an Estonian OÜ before shares are formally issued, but it is not equity until the increase is registered, and treating it as equity in the meantime is a common and avoidable mistake. The two normal ways this happens are a shareholder loan — the investor’s cash sits on the balance sheet as a liability, with interest terms or none — or a prepayment for future shares, where the money is earmarked for a capital increase that has already been agreed but not yet registered. Either way, until the register shows the new shares, the investor’s legal position is that of a creditor or a contractual counterparty, not a shareholder, which matters if the company runs into trouble in between.
This gap window is exactly where convertible instruments live in Estonia: the investor’s cash sits as a loan (or, less commonly, as a liability recognized as a convertible instrument on the balance sheet) while the parties wait for a triggering event — usually a priced round from another investor — before the loan actually converts into registered shares. Your accountant needs to know which bucket the money is in, because a shareholder loan and a share capital contribution are treated completely differently in the annual report.
The nominal value of a share and the amount an investor pays for it are two different numbers by design — the gap between them is share premium, and conflating the two is the fastest way to make your cap table wrong.
Why are nominal value and investment amount different numbers?
They are different because Estonian company law lets the nominal value of a share be as low as €0.01, while the amount an investor actually pays can be — and for a real investment, should be — far higher; the difference is booked as share premium (ülekurss). If an investor pays €100,000 for shares with a combined nominal value of €100, the company records €100 as share capital and €99,900 as share premium. Both numbers matter: share capital is what shows up as the formal capital figure tied to voting and ownership percentages, while share premium is additional paid-in capital that strengthens the balance sheet without inflating the nominal share count.
For a founder, the practical takeaway is that ownership percentage is driven by the number and nominal value of shares issued, not by the premium. Two investors who put in very different amounts of money can end up holding the same percentage if their share premium is set to absorb the difference, or different percentages at the same nominal value if the deal is structured that way. This is a term to negotiate deliberately with your lawyer, not something to leave to a template, because it is exactly where a badly drafted subscription agreement can quietly misstate what everyone agreed.
What does this look like on the cap table?
On the cap table itself, share premium usually does not change the percentage math directly — what changes it is the number of new shares issued relative to existing ones. A founder should sanity-check any round by asking two separate questions: how many new shares are being issued and at what nominal value (this sets the ownership split), and how much total cash is coming in and at what premium (this sets the company’s balance sheet and, indirectly, the implied valuation). Confusing the two is the single most common cap-table error first-time founders make when negotiating their first Estonian round.
Who does what, and when, in a first raise?
Step | Who acts | Typical timing |
|---|---|---|
Negotiate term sheet (amount, valuation, instrument) | Founder and investor, usually with counsel reviewing | Weeks before signing |
Draft the instrument (subscription agreement or convertible/loan agreement) | Lawyer, based on term sheet | 1-2 weeks |
Shareholders resolve to increase share capital and waive pre-emptive rights | Existing shareholders | At signing or shortly after |
Investor wires the contribution | Investor | At or after signing |
Articles amended if needed; filing prepared | Board / lawyer | Within days of contribution |
Registration with the e-Business Register | Board files, register approves | Days to a couple of weeks |
Cap table, accounting records and shareholders’ agreement updated | Founder, accountant, lawyer | Immediately after registration |
Does a US-style SAFE work for an Estonian OÜ?
A US-style SAFE does not transplant cleanly into an Estonian OÜ, mainly because Estonian company law has no concept of shares issuable on a future date without a present contribution to share capital, which is the entire premise of a SAFE. Estonian legal practice, including the model documents published by Startup Estonia, generally treats the investor’s money as a convertible loan: a real loan agreement, with a maturity date, that converts into shares on a qualified financing event, a sale of the company, or maturity — rather than an instrument that simply defers everything, indefinitely, until someone decides to price a round.
The other reason people adapt rather than copy is accounting and tax clarity. A SAFE’s ambiguous status — is it debt, is it equity, is it neither — creates real uncertainty for an Estonian company’s annual report and for its auditor, where a convertible loan is a familiar liability with well-understood treatment. None of this means you cannot get SAFE-like economics (a valuation cap, a discount, no interest); it means the document your lawyer hands you should be drafted for Estonian company law, typically as a convertible loan agreement, with the shareholders’ waiver of pre-emptive rights signed in advance so the eventual conversion does not need everyone’s signature scrambled together at the last minute.
A valuation cap and a discount both translate fine into an Estonian convertible loan — they set the conversion price formula, they are not SAFE-specific.
Interest is normal on an Estonian convertible loan and often absent from a SAFE — decide upfront whether you want it, since it affects the amount that eventually converts.
The conversion trigger (qualified financing threshold, exit, or maturity) needs to be defined precisely, because Estonian practice expects a maturity date where a SAFE often has none.
Pre-emptive rights waivers from existing shareholders should be signed alongside the loan, not negotiated later when the qualifying round actually shows up.
If more than one investor is on convertible terms, make sure their conversion mechanics do not conflict when the round that triggers conversion actually happens.
What will a real investor ask for beyond the money?
A real investor will ask for a clean set of articles of association, a shareholders’ agreement (SHA), an accurate cap table, and specific protections such as drag-along, tag-along and a list of reserved matters — and asking for these is a sign of a serious investor, not an unusual one. The articles are the company’s public constitution filed with the register; the SHA sits alongside them privately and covers what the articles do not, including investor-specific rights that founders would rather not make public. Expect a diligence request for the cap table before any money moves, because investors want to see exactly who owns what, on what terms, before they add themselves to the list.
Drag-along: lets a majority (often including the investor) force minority shareholders to sell on the same terms in an acquisition, so one holdout cannot block an exit.
Tag-along: lets a minority shareholder join a sale that a majority holder is making, on the same terms, so a founder cannot sell out alone and leave the investor stuck.
Reserved matters: a list of decisions (new share issuances, taking on debt above a threshold, changing the business, hiring or firing key executives) that need investor consent even though they hold a minority stake.
Information rights: regular financial reporting to the investor, beyond what the annual report already requires.
Anti-dilution protection: adjusts the investor’s position if a later round prices the company lower — a term worth understanding before you sign, not after.
How does an option pool interact with a first round?
An option pool and a new investor dilute the same cap table, so the order in which you create the pool changes who actually absorbs the cost. If the investor asks for a 10% pool to be created before their money comes in (the common US convention, often called the “pre-money pool”), the existing founders bear that dilution alone; if the pool is created after the round closes, the investor shares in diluting it too. This is a genuinely negotiable point, and first-time founders often accept the pre-money convention without noticing it is a real transfer of value.
Mechanically, an Estonian option plan does not itself require a share capital increase until options are actually exercised — the increase (and the registration that goes with it) happens when an option holder converts into an actual shareholder, following the same resolution-and-registration sequence described above for any new share issuance. If you are also running a three-year vesting structure for tax-favorable treatment under the Estonian participation-option relief, keep the option pool’s paperwork and the investor round’s paperwork clearly separated in your records, because they are taxed and registered on entirely different timelines.
What should you be honest with yourself about before you raise?
The €0.01 minimum share capital is genuinely useful for keeping formation cheap, but it does not mean a real cap table is trivial once outside money is involved — the low minimum removed a formation barrier, not the need for correctly drafted resolutions, a properly negotiated SHA, and a cap table that matches what the register actually shows. Founders who treat a one-cent legal minimum as proof that the legal work itself is minimal are the ones who end up with a mismatch between what investors think they signed and what the register says months later.
The second honesty point is about who should actually do this work: the corporate paperwork behind a first raise — the resolution, the articles amendment, the SHA, the pre-emptive rights waiver, the conversion mechanics — is a lawyer’s job, not a template-filling exercise, and this article’s purpose is to make you an informed client who asks the right questions, not a substitute for that lawyer. Read your draft documents, understand what drag-along and reserved matters actually do to your control of the company, and bring specific questions to counsel rather than signing an adapted-from-a-US-template document you have not fully read.
Frequently asked questions
Does an Estonian OÜ need a notary to raise its first round?
It depends on your articles of association and on your paid-up share capital. Share transfers can skip the notarial form only if the company’s share capital is at least €10,000, fully paid up, and the articles have been unanimously amended to waive the notarial requirement; otherwise the default notarial form applies. A share capital increase for a new investor has its own formal requirements that your lawyer should confirm against your specific articles before you assume either way.
Can I use a US SAFE template directly with my OÜ?
Not as-is. A SAFE assumes a concept of shares issuable later without a present contribution to registered share capital, which Estonian company law does not have. Founders typically adapt SAFE-like economics — a valuation cap, a discount, no interest — into an Estonian convertible loan agreement, often based on a Startup Estonia model document, that has a defined maturity date and conversion mechanics that fit the commercial register process.
What is share premium and why does my investor care about it?
Share premium (ülekurss) is the amount an investor pays above the nominal value of the shares they receive. It lets the nominal value of shares stay tiny (as low as €0.01) while the real investment amount is fully recorded on the company’s balance sheet as additional paid-in capital, separate from the formal share capital figure used for ownership percentages.
Where does money sit before shares are actually issued?
It typically sits as a shareholder loan on the balance sheet, or as a prepayment earmarked for an already-agreed capital increase that has not yet been registered. In either case the investor is legally a creditor or contractual party, not yet a shareholder, until the share capital increase is filed and approved at the e-Business Register.
How long does a share capital increase take to register?
Once the resolution is signed and the contribution has reached the company account, a clean filing can be approved by the e-Business Register (ariregister.rik.ee) within days to roughly two weeks, depending on whether the articles also need amending and whether the register requests clarifications. Building in buffer time for a first-time filing with a new investor is realistic.
What is the difference between a convertible loan and a shareholder loan?
A convertible loan has agreed conversion mechanics — a trigger event, a conversion price formula, sometimes a valuation cap or discount — that turn it into shares under specific conditions. A plain shareholder loan has no built-in path to equity; it stays debt (with or without interest) unless the parties separately agree, later, to convert it through a fresh share capital increase resolution.
Do drag-along and tag-along rights actually matter for a small first round?
Yes, more than founders expect. Drag-along protects a future acquirer (and often the investor) from being blocked by a small minority holder; tag-along protects a minority holder, including your first investor, from being left behind if founders sell out separately. Even a small first round is a good moment to get these right, because renegotiating them later, with more shareholders at the table, is harder.
Should the option pool be created before or after the investment round?
Either is possible, and it is negotiable. A pool created before the round (pre-money) is diluted only by the existing founders; a pool created after the round is diluted by the investor too. Understand which convention your term sheet is proposing before you agree to it, since it changes who effectively pays for the pool.
Is €0.01 minimum share capital a problem for raising money?
No, the low minimum is not itself a problem — it only sets the legal floor for forming the company cheaply. It does not simplify the actual work of a real raise: a properly drafted increase resolution, an accurate cap table, a shareholders’ agreement, and registration with the e-Business Register are all still required regardless of how small the nominal share capital is.
