Once a SaaS company reaches the €1M+ ARR stage, investor interest increases – but so do expectations. Alongside financial metrics, legal readiness becomes critical: a well-structured setup can accelerate a funding round, while deficiencies may delay or even prevent an investment.
Below are the key legal aspects that every growing SaaS company should address early on.

1. Shareholders’ agreement and cap table in order from the outset

A shareholders’ agreement should be put in place at an early stage – not only when investors come in. Clear rules help prevent future disputes and increase investor confidence.

Particular attention should be paid to avoiding a broken cap table. A situation where a significant portion of the company is owned by parties not involved in the business (so-called dead equity) may become an obstacle to investment.

In such situations, possible solutions include:

• voluntary share transfers prior to the funding round
• share purchases by the investor (so-called secondary transactions)
• a larger-than-usual option pool (ESOP)
• in extreme cases, the establishment of a new company

In all cases, the potential tax implications must be considered, and the overall most suitable solution should be chosen. Naturally, the preferred approach is to ensure—through a well-functioning shareholders’ agreement, for example—that ownership remains with those actively involved in the business.

2. A clear corporate structure

Investors value transparency. A group structure without a clear rationale may raise questions and, in any case, add complexity to the company’s operations. In most cases, the most appropriate structure is for founders to own the company directly or, where necessary, through their own holding companies.

Structures where parts of the business or rights related to the business are held in separate entities, or where founders have a joint holding company that in turn owns the operating company, are often unclear and may complicate the investment process. In addition, such structures introduce complexity without necessarily providing corresponding benefits.

A simple ownership structure reduces legal uncertainties, accelerates the due diligence process, and gives investors confidence that the company is well-managed from a governance and legal perspective – which is often decisive in securing VC funding.

3. Intellectual property (IPR) – the company’s most important asset

The value of a SaaS company is often based on its technology. It is therefore critical that:

• key IP rights are owned by the company
• in spin-off situations, rights to previously developed technology are properly secured
• customisations made for customers do not transfer IP rights away from the company

Care must also be taken when using open source components. Incorrect licensing may result in the company’s own code becoming “contaminated,” meaning it becomes freely usable under open source license terms, which may hinder its commercial use. Ultimately, the key question is: what is licensed in, and what is licensed out?

4. Regulation as part of the product – not just documentation

The current regulatory environment requires that obligations related to, for example, data protection and artificial intelligence are taken into account already at the product development stage.

Key frameworks to consider include:

• GDPR
• Data Act
• AI Act

Documentation alone is not sufficient – compliance must be built into the technical solutions and embedded in operating models.

5. International situations

Using foreign freelancers and subcontractors is often attractive due to speed and flexibility, but it may involve significant legal and financial risks. One of the most important is the risk of creating a permanent establishment, which may trigger tax and other obligations in the relevant country. This risk can arise even from a relatively limited amount of work performed abroad, despite the business being primarily operated domestically.

In addition, the distinction between an employee and a subcontractor is often unclear. In practice, tasks, reporting practices, arrangements regarding holidays and leave, and the level of supervision may lead authorities to consider the relationship as employment, even if the parties have considered it a subcontracting arrangement. This may result in obligations such as social security contributions, pension payments, and employer liability. The assessment is further complicated by the fact that it must be made based on the rules of the contractor’s or employee’s country of residence.

To mitigate these risks:

• enter into subcontracting agreements with a company, not an individual
• clearly define the contractor’s role and independence
• avoid mechanisms and terminology typically used in employment relationships
• carefully document the cooperation and allocation of responsibilities

With the right structure and contractual terms, international operations can be efficient and secure, but ambiguities can easily lead to significant financial and legal consequences.

6. Legal due diligence readiness

Before making an investment decision, investors conduct a thorough legal due diligence review. A well-prepared company can accelerate the process, increase investor confidence, and even strengthen its negotiating position.

It is essential that the company’s governance and documentation are up to date and easily accessible. In particular, attention should be paid to the following:

• Trade register information: ensure that share issues, option grants, and other entries are up to date and correspond to the decisions made.
• Key agreements: from an investor’s perspective, customer and supplier agreements, as well as any licensing and IP agreements, are crucial. These demonstrate that the business is legally sound.
• Employment contracts and HR documentation: employee rights, salaries, and employment terms must be clearly documented. This also applies to foreign freelancers and subcontractors to avoid uncertainty regarding employment relationships or permanent establishment risks.
• Corporate decisions: minutes of general meetings and board meetings, option plans, and other strategic decisions demonstrate proper governance.
• Data protection and regulatory documentation: GDPR, AI Act, and other applicable regulations must be addressed, and documentation should demonstrate compliance.

Good due diligence readiness also means that documents are logically organised and easily accessible. Investors appreciate being able to find relevant information quickly, which reduces follow-up questions and uncertainty. In short: the more “VC-ready” a company is from a legal perspective, the faster and more smoothly the investment process will proceed.

Summary

VC readiness is not built on growth metrics alone. The legal foundation – ownership structure, agreements, IP, and compliance – is a key part of the overall picture.
In the best case, these elements are already in place before discussions with investors begin. In the worst case, deficiencies only come to light during due diligence, when correcting them is more difficult, more expensive, or even impossible, potentially resulting in a lost investment.
For this reason, legal preparation should start early – it is not only a matter of risk management, but also a competitive advantage when seeking funding.

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