How we registered our non-profit startup in Estonia through its e-Residency programme

 How we registered our non-profit startup in Estonia through its e-Residency programme


Wait, why are you a non-profit?

This is a question we hear the most. We have distilled our answer to two fundamental concepts that we believe to be the most telling and universal: alignment with the mission and goodwill.

Firstly, alignment with the mission. At Invisible City we help emerging performing artists easily book gigs with the venues and build their audience. We are in this to support talent, innovation and experimentation. If we had a constant pressure to maximize profit, it is only logical that we would have to focus solely on the risk-free, popular and established artists. Being a non-profit, however, allows us to set the incentive structure for ourselves in such a way that we focus on our core mission: help emerging dancers, theater groups and musicians bring magic to this world.

Secondly, goodwill. As humans we seek meaning, and we are ready to contribute our skills and time to a higher purpose through volunteering, mentoring or offering a friendlier price for our services.

In a continuous battle for funding, the goodwill of our key supporters has been a deal-breaker for Invisible City. We have met extraordinary developers and data scientists who have volunteered some of their most elegant lines of code to Invisible City. Promising young designers have interned with us, applying their creativity to the Invisible City challenges. Otherwise inaccessible CEOs with a rare insight into how the startup world works have become our mentors and — yes — cheerleaders, which has helped Invisible City keep its head up on the inevitable downward slopes of a startup roller coaster.

Why did we choose Estonia as our legal home?

When we realized the need to register our activity, we started collecting evidence from those who have already been through the process. As we are based in Lisbon, we first researched the most successful non-profits in Portugal and set up interviews with their founders in order to understand the Portuguese reality. Second, we approached a Portuguese lawyer with experience in international law, who volunteered to research how non-profits work in Portugal and in the EU. Third, we picked the EU countries whose languages we understand — France, Belgium, Spain, Italy, Czech Republic, Slovakia, Poland — and researched blogs and guidelines on how to open a non-profit there. This way we identified three painful bumps on the road to getting our non-profit registered:

    The minimum number of founders needed to register a non-profit
    The language of the legal documentation
    The time and traveling expenses required for the registration and for any successive changes

Pain 1 — The minimum number of founders

Non-profits have one strangeness: you can not do it alone. Historically, non-profits emerged from clubs and associations, perpetuating the idea that it must be a group, and never an individual endeavor. However, how many are a group? In Portugal, where we are based, one needs nine people to register a non-profit. Most Portuguese non-profit founders we interviewed reassured us that having this many founders means having to do lots of politics. Unnecessary politics was exactly what we wanted to avoid — we are here to help emerging artists, after all! All other countries we researched required the minimum of three founders — promising, yet that lead to other issues. Discovering that in Estonia you only need two founders felt like a blessing: we could stay small and agile, avoiding the artificial bloating of the founders’ list.
Pain 2 — The language of the legal documentation

Although in our team we speak nine EU languages in between us, we definitely did not want to add a level of linguistic dependency to our legal status. Legal documents is a serious matter, and we wanted to make sure they are in the language we are most comfortable with — English. Discovering that in Estonia all legal documents are in English and that all further communication is also in English reassured us even further in our choice.
Pain 3 — Time and traveling expenses

Finally, all the countries we considered as our potential legal home required the founders to travel to the government office to sign the papers, and the evidence suggested that a single trip is never enough to get everything right. Moreover, any future change required the founders being present at the government office for signing again, and we concluded that this could soon escalate into a ruinous expense. Discovering that in Estonia both registration and changes to it are done online meant we could be location-independent and did not have to budget for extra travel, tricky coordination logistics and frustrating government office lines.

To sum it up, the Estonian e-Residence allowed us to become a registered non-profit with just two co-founders, while having all the documentation in English and all the signing online.

What is a real life scenario of registering a non-profit in Estonia?
Step 1 — Apply for the e-Residency

The e-Residency website is exceptionally delightful to use: half an hour of great design and 200 EUR later, both our founders had the applications submitted. It took two weeks for our EU founder, and four weeks for our non-EU founder to get the residency package. During this process we faced a human only once: it was a lady at the Estonian Embassy who handed us our electronic cards.
Step 2 — Install all the necessary software

The first time we tried to use our cards to access the services, nothing worked, as the setup process is still messy, while both the UX and the UI of the web applications feel early 2000. However, no need to panic: the support line picks up your call instantaneously and resolves everything in a matter of minutes.
Step 3 — Register your non-profit

This requires signing two documents: The Founding Agreement and The Financial Period statement. Both are hardly longer than half a page. As every organization is required to have a legal address and a legal representative in Estonia, we had to look for a local company that could act as our representative. We wrote to the Estonian government office and got redirected to SunnyBusiness, a legal consultancy that has experience with non-profits. We paid a total of 400 euros for this help: they assisted us in drafting the founding documents, consulted us timely on all our endless concerns and submitted our case to the national registry.

Our submission did get rejected twice. Instead of the expected 5 days, it took us 10 days to have everything registered. To avoid our fate, make sure you follow these simple rules:

    all the co-founders should electronically sign all the documents at all times
    you must mention the dates of your fiscal year

Important life-hack: in Estonia you can choose when your fiscal years starts. Accountants are busy at the end of the year, when everyone else is submitting their declarations, so by choosing an off-peak date you can assure that your accountant gives all their love and attention to you.
Step 4 — Open an account with an Estonian bank

This is probably the trickiest bit, as there are many contradicting myths based on, what we think, lack of direct experience with the process.

You need to keep in mind that non-profits, unlike for-profits, need to physically come to the bank to sign the contract. This requires one of the founders to travel all the way to Estonia. Banking service companies such as Holvi, whom everyone recommends, in Estonia work only with for-profits. We actually got to discuss this issue with one of Holvi’s co-founders, who explained to us that money laundering being the major concern and non-profits being a small segment, they have not developed policies for onboarding remote non-profits. So, yes, you’ll have to choose a traditional bank, at least for now.

Further, there seems to exist some generalized fear that local banks do not work with non-Estonian non-profits. We contacted the local non-profit founders asking them which bank they would recommend, and LHV came as the one with the best reputation and the lowest fees, so we approached them. LHV did warn us from the very start that it would take them a minimum of 10 working days to give us a response on our case, and indeed we received an invitation to come sign a contract with them on the 10th day.

You need to be prepared that the bank will have to follow the ‘know-your-customer’ guidelines and ask you for the following information:

    Passport copies of both founders
    Linked-In profiles of both founders
    Proof of your activity. We showed one of our developer contracts and even shared a link to the YouTube video of our co-founder playing with his post-rock band.
    Proof of your connection to Estonia. This requirement is quite vague, so we prepared a one-pager explaining that we have worked with Estonian cultural institutions in the past and that we would like to work with Estonian artists in the future.

Step 5 — Travel to Estonia to sign your contract with your bank

Coming from Portugal, I had to take three different flights each way in order to keep the total traveling cost to under 200 EUR. With a bit of forward planning you can make it. On the day I arrived, I spent about one hour in the bank, and left with everything set up. In the following days Invisible City received one of the grants we had applied for, and since then we have been focusing on our core mission: helping emerging artists perform and helping the audience spend their free time meaningfully.

We seem to be among the very few who have registered a non-profit in Estonia with the e-Residency programme, and as there is no proven path yet, we are still figuering many things out on our own. If you would like to talk to us, we are reachable at sergej@dergatsjev.be