Monthly Accounting for Estonian Startups

A seed investment in exchange for equity is recorded as an increase to share capital and share premium — not as revenue. The exact entries depend on the transaction structure. Most commonly: the investor buys newly issued shares in the OÜ at a negotiated price per share. If the OÜ has 10,000 existing shares with a nominal value of €1 each and issues 2,000 new shares at €150/share (total €300,000), the entries are: DR Cash €300,000 / CR Share Capital €2,000 (2,000 × €1 nominal) / CR Share Premium €298,000 (2,000 × €149 premium). The transaction must also be registered in the äriregister. Until registered, the shares are not legally created. In practice, the investment closes when both the legal registration and the accounting entries are complete. Your accountant and your lawyer should coordinate on the timing of the accounting entries to match the legal completion date.

Yes — reconstructing startup accounts is something we handle regularly. The reconstruction process: we obtain all bank statements for every account for every period, all investment documentation (term sheets, share purchase agreements, notarial deeds for share transfers), all invoices issued and received, all salary and board fee payment records, and any grants received. From this we rebuild the general ledger from the beginning, reconcile the equity structure to the cap table, and bring the accounts up to current date. We also file any outstanding annual reports with the Business Register. The cost depends on how many periods need reconstruction and how well the source documents are organised — typically €800–2,500 for a two-year reconstruction. This is always cheaper than having investors discover a mess during due diligence.

Most Estonian startups do not legally require an audit. Under the Audiitortegevuse seadus (Auditing Activities Act), a statutory audit is mandatory for companies that exceed two of the following three criteria: total assets over €4.4 million; revenue over €8.8 million; average employees over 100. Below these thresholds, audit is voluntary. However, many investors — particularly institutional VCs and US-based funds — require audited accounts as a condition of investment at Series A and above, regardless of legal requirement. Enterprise Estonia and EU grants above certain amounts also require audit. Our recommendation: do not audit until an investor or grant requires it (saves €5,000–15,000/year for early-stage companies), but maintain IFRS-quality accounts so that when an audit is required, the accounts are clean enough to audit efficiently.

Under IFRS 2, options granted to advisors (who provide services) are treated the same as employee options — expense the fair value of options at grant date over the vesting period. The monthly P&L charge is: (Grant-date FMV of options) ÷ vesting months. If the advisor’s options have a grant-date fair value of €10,000 total (5% of company at the time), the monthly charge is €10,000 ÷ 24 = €417/month for 2 years. This creates a non-cash P&L expense of €417/month and a corresponding ESOP equity reserve on the balance sheet. At exercise, if the advisor buys shares at the exercise price, the gain (FMV at exercise minus exercise price) is treated as employment income subject to income tax and social tax — even though they are not an employee. EMTA views advisor options as equivalent to employee options for tax purposes.

EAS grants are not immediate revenue — they are conditional income that must be matched to the eligible expenditure period. On receipt of the €15,000: DR Cash €15,000 / CR Deferred Grant Income (liability) €15,000. As you incur the approved eligible expenditure: DR Deferred Grant Income / CR Grant Income (P&L) — matching the grant release to the expenditure period. For example, if €5,000 is approved for salaries and €10,000 for equipment, release €5,000 to income as the salary costs are incurred and €10,000 as the equipment is purchased. Maintain a project sub-ledger showing every euro of grant spending against the approved budget. EAS typically requires at least two interim reports and a final report with supporting invoices. If you spend the money on unapproved items or fail to submit reports, EAS can claim back the grant with interest — so the accounting and reporting discipline is commercially important, not just a formality.