Startup Investment Readiness. What to Put in Order Before Sitting Down with an Investor

Imagine this scenario: you receive a term sheet from an investor. Excitement, congratulations from the team, plans to scale. Then due diligence begins. It turns out that two founders have a verbal agreement on a 50/50 split, the articles of association come from an S24 template, no one knows who has veto rights, and the cap table exists only in the CEO’s head. The investor gives you two weeks to put everything in order. Otherwise, they walk away.

Would your company pass this test?

Startup investment readiness is not a product, a slide, or a pitch deck. It is a state in which your ownership structure, corporate governance, and documentation allow you to enter into discussions with an investor without the risk of due diligence exposing chaos. In 2023, the Polish VC market recorded 438 transactions with a total value of PLN 2.1 billion, while in 2024 there were 148 transactions of the same total value (source: PFR Ventures). Competition for capital is increasing, and investors are becoming quicker to eliminate companies that are not formally prepared.

In this article, you will find a specific list of actions you need to take before sitting down at the table with an investor, from auditing your cap table and formalizing relationships between founders to designing corporate governance for the funding round.

Key terms you need to know before speaking with an investor

Before we move on to the recommendations, let’s clarify the terminology. The investor will use these terms, and you need to understand them too.

What an investor checks during due diligence, and where startups most often fall short

Due diligence is the moment of truth. The investor does not assess only the product and traction, they also analyze whether the company’s structure allows them to invest safely and exit the investment in the future.

Below are the most common areas in which startups lose credibility:

A messy cap table

The investor wants to see an up-to-date, unambiguous cap table. If you do not know how many shares each shareholder owns, what preferences are attached to them, or whether any informal promises of equity exist, the conversation is over.

In a Polish limited liability company, share preferences are governed by Article 174 of the Commercial Companies Code, they may concern voting rights (a maximum of 3 votes per share), dividend rights (a maximum of 150% of the dividend payable on an ordinary share), and participation in the distribution of assets. Every preference must be included in the articles of association.

No formalized arrangements between founders

Two founders establish a company with a 50/50 split and no founders’ agreement. After two years, one of them wants to leave. There is no exit mechanism, reverse vesting, or buyback arrangement. The company remains at a standstill for a year because neither shareholder can force the other to sell their shares or to stay.

For an investor, the absence of written arrangements between founders is a warning sign, it indicates the risk of a shareholder dispute that could paralyze the company just as it begins to grow.

Template articles of association

A company incorporated through the S24 system (a fee of 350 zł and registration within a few days) uses a standard template for its articles of association. This template does not allow provisions required by investors to be introduced, such as share premium, drag-along, tag-along, share preferences, restrictions on share transfers, or changes to quorum and voting majorities. Such provisions require the form of a notarial deed.

If your articles of association come from a template, you are not investment-ready.

Unresolved intellectual property issues

Rights to code, know-how, and trademarks, if they have not been formally transferred to the company, the investor sees a risk of losing value. Check whether agreements with developers and subcontractors clearly transfer copyright to the company.

Outstanding corporate formalities

Missing minutes of shareholders’ meetings, unfiled financial statements, or outdated information in the National Court Register, each of these issues prolongs the process and undermines the management board’s professionalism.

Contact us, we will help you identify gaps in your documentation before you speak with an investor.

How to put your ownership structure in order before a funding round

Audit your cap table

Review the current ownership structure: who owns how many shares, what preferences are attached to them, whether shareholders have any personal rights (Article 159 of the Commercial Companies Code), and what the articles of association say about share transfers.

Shareholders’ personal rights are rights assigned to a specific person rather than to a share. They must be included in the articles of association, otherwise they are ineffective against the company. Typical examples include the right to appoint a management board member, veto rights in specified matters, and expanded information rights. Unlike share preferences (Article 174 of the Commercial Companies Code), personal rights are non-transferable, they do not pass to the purchaser of the shares.

Put informal arrangements in writing

If there are verbal agreements between founders concerning the allocation of roles, equity, or departure terms, put them in writing. The investor expects relationships between the founders to be formalized. A founders’ agreement should cover:

1. Allocation of roles and responsibilities between the founders
2. A vesting or reverse vesting schedule
3. An exit mechanism, what happens when one of the founders wants to leave
4. Buyback rules, the price and procedure under which the company or the remaining founders may repurchase the shares
5. A dispute resolution mechanism, mediation, arbitration, escalation

Prepare a dilution model

Show the founders and potential investors what the ownership structure will look like after the seed round, Series A, and any ESOP (employee incentive plan). This is a negotiating tool, a founder who understands the mechanics of dilution negotiates better terms.

The model should cover at least the next 2-3 rounds and take into account:

1. A seed investor entering at a specified valuation
2. A Series A round with a new valuation and a new investor
3. An ESOP pool, typically 10-15% of the shares reserved for an employee incentive plan
4. The impact of anti-dilution mechanisms on the founders’ equity

Corporate governance, how to design it for a funding round

Corporate governance is a set of rules defining who decides what within the company. If poorly designed, it obstructs day-to-day management after the investor comes on board. If well designed, it gives the investor control over key decisions without paralyzing operations.

List of reserved matters

Article 228 of the Commercial Companies Code specifies a statutory list of matters requiring a resolution of the shareholders’ meeting: approval of reports, distribution of profit, granting discharge to members of the company’s governing bodies, and disposal of real estate. Article 246 § 1 of the Commercial Companies Code requires a qualified majority of 2/3 of the votes to amend the articles of association or dissolve the company, and 3/4 of the votes to make a material change to the company’s business activities.

The articles of association may expand this list, and this is precisely what the investor will expect. Typical reserved matters in investment agreements include:

1. Incurring liabilities above a specified amount
2. Issuing new shares
3. Selling assets of significant value
4. Entering into agreements with related parties
5. Taking out loans and providing security
6. Changing the company’s business profile
7. Initiating litigation involving a significant amount

Failure to obtain the required resolution renders the transaction invalid under Article 17 of the Commercial Companies Code, so defining the list precisely is mandatory, not optional.

Investor protection mechanisms

An investor joins the company with specific expectations regarding the protection of their position. Below are the mechanisms you need to understand and know how to negotiate:

Each of these mechanisms must be embedded in the articles of association to have corporate effect. Provisions included solely in the SHA (shareholders’ agreement) or investment agreement create only contractual claims against the parties to the agreement, without conferring direct rights against the company.

Share redemption as a good leaver / bad leaver tool

Article 199 of the Commercial Companies Code governs the redemption of shares in a Polish limited liability company. Appropriate provisions must be included in the articles of association. There are three procedures:

1. Voluntary redemption, with the shareholder’s consent, the company acquires the shares
2. Compulsory redemption, without the shareholder’s consent; the grounds and procedure must be precisely defined in the articles of association
3. Automatic redemption, triggered by the occurrence of an event specified in the articles of association

In startups, this mechanism is used to implement good leaver / bad leaver rules:

• Good leaver (e.g. departure for justified reasons) → voluntary redemption at market price
• Bad leaver (e.g. departure in breach of the agreement, competing with the company) → compulsory redemption at a lower price, but not below the minimum specified in Article 199 § 2 of the Commercial Companies Code (the net asset value attributable to the share)

The grounds for compulsory redemption must be described precisely, vague wording leads to disputes and may be challenged in court.

Tax aspects of an equity investment

The tax structure of the investment affects the cost of the capital injection and the attractiveness of the transaction. There are three areas you need to review:

Tax on civil law transactions (PCC)

The rate is 0.5%, charged solely on the value of the share capital increase, not on the entire investment amount. If the investor contributes PLN 1 million, of which PLN 50 thousand goes to share capital and PLN 950 thousand to share premium (the surplus over the nominal value of the shares), the PCC is 0.5% × PLN 50 thousand = PLN 250.

CIT neutrality of capital contributions

Article 12(4)(4) and (11) of the CIT Act excludes the following from taxable revenue:

1. Contributions made to share capital
2. Surpluses (share premium) over the nominal value of the shares

This means that, as a rule, an investor’s contribution to share capital and share premium does not generate taxable revenue for the company.

Note: an interpretation issued by the National Revenue Information Service indicates that a contribution to supplementary capital without an increase in share capital may generate taxable revenue for CIT purposes, therefore, the structure of the equity investment requires tax review.

IP Box, the preferential 5% CIT rate

Article 24d of the CIT Act provides for a 5% rate on qualifying income from intellectual property rights developed through research and development activities. This includes, among other things, copyright in computer programs, patents, and utility models.

Conditions: the company must keep records allowing income from each qualifying IP right to be identified separately and must apply the nexus ratio. For technology startups that develop software in-house, the IP Box may significantly reduce the effective tax rate, which makes the company more attractive to an investor.

ASI, when it is worthwhile and what to watch out for

An alternative investment company (ASI) is an investment vehicle governed by the Investment Funds Act. It is used to collect assets from multiple investors in order to invest them in accordance with a specified investment policy.

When an ASI makes sense

An ASI is a solution for business angels, groups of private investors, or funds that want to invest jointly in startups through a structured vehicle. Permitted legal forms include a Polish limited liability company, joint-stock company, European company, limited partnership, or limited joint-stock partnership (with a corporate entity acting as the general partner).

Registration thresholds with the KNF

Reporting obligations

An ASI manager (ZASI) operating on the basis of an entry in the register submits annual reports to the KNF, the deadline is 31 January of the following year. Reports are submitted through the ESPI system in XML format.

Risks

1. Operating as a ZASI without the required registration exposes the entity to administrative sanctions imposed by the KNF, financial penalties, an order to cease operations, or a ban on conducting such activities in the future
2. A poorly designed ASI structure creates operational and regulatory burdens, similar to the problems associated with non-public closed-end investment funds, where the requirement of a 2/3 majority to merge funds is impossible to meet in many cases
3. An ASI may not raise financing from natural persons (except professional clients), Article 8a(4) of the Act

If you are considering an ASI or another investment vehicle, verify whether the planned structure requires notification to or registration with the KNF before the investor asks about it.

P.S.A. as an alternative to a Polish limited liability company, when to consider a conversion

A simple joint-stock company (P.S.A.) was designed for startups seeking external financing. It offers mechanisms that a Polish limited liability company does not provide:

1. Share capital from 1 zł, versus 5,000 zł in a Polish limited liability company and 100,000 zł in a joint-stock company
2. No-par-value shares, capital can be increased without amending the articles of association
3. Founder shares, protecting founders against dilution (a fixed proportion of votes regardless of the issue of new shares)
4. Contributions in the form of work or services, a founder may contribute work instead of cash (note: such contributions do not increase share capital, and the shareholder is subject to ZUS social security contributions)
5. Sale of shares by email, without a notarial deed
6. Easier incentive plans, ESOP and vesting built into the company’s structure

Converting a Polish limited liability company into a P.S.A. takes approximately 2-4 months, with notarial costs of approximately 1,500-2,000 zł and court fees of 600 zł. It does not require an auditor’s opinion. The company retains legal continuity, its tax identification number, permits, contracts, and credibility in the eyes of counterparties remain unchanged.

If your Polish limited liability company has template articles of association and you are planning multiple funding rounds, consider converting it into a P.S.A. before beginning discussions with an investor.

Checklist: startup investment readiness

Below is a list of items you should have in order before your first conversation with an investor:

Put your structure in order before the investor asks

The cost of putting your structure in order before a funding round is many times lower than the cost of restructuring it afterward, conducting remedial negotiations, or resolving shareholder disputes. A poorly designed structure may lower the valuation, delay the round by months, or, in extreme cases, prevent it from going ahead.

We support startup founders and management boards in preparing companies for funding rounds, from auditing the cap table and articles of association, through formalizing relationships between founders, to designing corporate governance and protective mechanisms. We work with real-world transaction scenarios and understand the realities of negotiations with VC funds.

If you are planning a funding round in the coming months, contact us. We will assess your investment readiness and identify what needs to be corrected before you sit down at the table with an investor.

Frequently asked questions

When is the right time to put the company’s structure in order, before discussions with an investor or only after receiving a term sheet? Before the discussions. The investor assesses your organizational maturity from the very first meeting. If due diligence reveals that the cap table is unclear, the articles of association come from a template, and the founders have no written arrangements, you lose credibility and negotiating leverage. Putting the structure in order after receiving a term sheet is possible, but it happens under time pressure and on less favorable terms. In practice, preparing a company from a legal perspective takes anywhere from several weeks to 2-3 months, plan ahead.

What documents do I need to have ready for an investor to take my startup seriously? The minimum set includes an up-to-date cap table, articles of association in the form of a notarial deed (not an S24 template), a founders’ agreement, an up-to-date extract from the National Court Register, filed financial statements, minutes of shareholders’ meetings, and documentation confirming intellectual property rights (agreements with developers, copyright assignments). Recommended additions include a dilution model covering 2-3 rounds and a term sheet template.

Is a 50/50 equity split between founders a problem? Yes, from an investor’s perspective, it is one of the more serious warning signs. A 50/50 split without a dispute resolution mechanism (e.g. a casting vote, mediation, or arbitration) creates a risk of decision-making deadlock. If the founders cannot agree, the company comes to a standstill. The investor sees this as a threat to operational continuity. If you have a 50/50 split, make sure you have a founders’ agreement with a clear deadlock resolution mechanism.

What is the difference between an SHA and the articles of association, and do I need both? The articles of association are a corporate document, they govern the company’s structure, share rights, and the rules for adopting resolutions. They are effective against the company and third parties. An SHA (shareholders’ agreement) is a civil law agreement between shareholders, it governs their mutual relationships: exit rules, protective mechanisms, veto rights, and dilution rules. It is effective only between the parties to the agreement. You need both: the articles of association give the mechanisms corporate effect, while the SHA governs details of the relationships between shareholders that cannot or should not be included in the articles of association.

How long does it realistically take to prepare a company legally for a funding round? From several weeks to 2-3 months, depending on the starting point. If you have template articles of association, no founders’ agreement, and a disorganized cap table, more time will be required. If the fundamentals are already in place and the task is to tailor governance to a specific investor, the process will be shorter. Converting a Polish limited liability company into a P.S.A. (if you decide to change the legal form) takes an additional approximately 2-4 months.

What is an ASI, and does it concern me as a founder? An alternative investment company (ASI) is an investment vehicle for groups of investors, not directly for a founder. It concerns you if your investor plans to invest in the company through an ASI or if you are creating a vehicle yourself to raise capital from multiple business angels. An ASI requires entry in the KNF register (fee: the equivalent of EUR 2,000) and is subject to reporting obligations. Operating without registration exposes the entity to administrative sanctions. Verify this formal issue before the investor asks about it.