Who must comply with the Cap Table management?

An idea that the founders desire to commercialize drives them to launch a business. Their management style must change as their business grows and evolves to support growth-oriented strategic decisions. Having a cap table is critical to know how much of the business can be used to crowdfund or reach out to angel investors to invest in the company. Hence, in this article, we will look at who must comply with the cap table management.

Purpose of a Cap Table

One such essential corporate progression is creating and efficiently managing a capitalization table (cap table). In this sense, capitalization refers to the total and itemized breakdown of all individuals who currently possess stock in the company or future stock options. Keeping track of these things in one place makes it easier to see who owns what parts of the company and what securities are still outstanding.

If the company has another 20% remaining stake of the company worth crowdfunded. Startups owners would therefore reach out to angel investors who have a good network or expertise in a similar field to request them to invest in the company. That way, the startup may be able to latch on to the investor’s knowledge and expertise to accelerate the business growth.

Who must comply with one?

This is a topic that confronts nearly every business. The cap table is one of the most crucial documents for a new business. The capitalization table is also often used by privately held businesses to provide vital market value information to potential investors.

Owning the capitalization table is advantageous for a privately held startup. The table is a great resource for learning about the current market cap of the organization. Along with this, most businesses make use of cab tables to facilitate the evaluation of investments and shareholders.

Before putting money into a company, investors will often check to ensure they set aside enough equity for future growth. Therefore, any company that wants to attract investors, in the long run, should think about making these essential capitalization tables.

Who is involved with the cap table?

The cap table, or the capitalization table, is a simple spreadsheet that lists the investors in an early-stage company. It includes the number of shares each investor has, as well as their current holdings if any. Every quarter your board should review your cap table and make sure it’s accurate because changes to investors’ holdings could impact their incentives for further investing.

Angel Investor

Wealthy private investors known as “angels” specialize in funding start-up companies in exchange for stock. Angel investors use their net wealth, as opposed to venture capital firms, which employ an investment fund.

Startup companies typically reach out to angel investors to crowdfund their businesses first, as they typically are so-called “friendship” investors. Not only that, angel investors typically have good outreach of multiple networks that can help grow any startup firm.

Business Management Team

When your investors and their funds are involved, managing all the paperwork can be a full-time job. In addition to tracking ownership, you have to keep track of all the different terms, covenants, and restrictions. For the most part, these legal details will be set up by lawyers, who will draft policies that work with your cap table and help you track things over time.

Oftentimes, the business owners would thereby hire a business management team to properly manage the company asset ins and out. The business management team would typically consist of lawyers, accountants, a human resource team, and its fellow assistant.

Depending on the size of the company, businesses would enlarge their business management team to further distribute and manage the company’s cap table. Having a large, strong team of the business management team would allow the business owner to focus more on growing the business while letting the team manage the company’s wealth.

Employee

Most startup firms typically provide ESOP (Employee Stock Ownership Plan), which is the option that grants employees stock shares as a form of corporate ownership. Since most startup firms cannot provide a competitive salary in the labor force, they typically use ESOP to attract like-minded employees who can envision the company’s long-term goal and work towards growing the company.

Typically, ESOP requires a certain amount of years of commitment in the company to exercise the stock options. Therefore, employees need to understand and comply with the cap table management.

Business Owner

As a business owner, understanding how a cap table works and how he/she can use the cap table to their advantage is critical. A business owner needs to know that they must at all times be the majority shareholder in the business to be able to finalize any important decision in a company.

Therefore, a business owner needs to work with their business management team member to provide a proper cap table to allow the investor to invest in the company and enough shares for the business owner to control the company.

Investor

Any investor that owns part of the company’s share has the right to voice their opinion on how the company should be run moving forward. Every year, some company would host a shareholder meeting to hear out how their investor would feel about certain ideas they have for the company moving forward. Ideas such as company raising dividends, stock splits, company new products, or company ideas of growth moving forward.

A properly managed cap table ensures that all investor opinion is heard and our understanding of what the company plans to do moving forward.

What happens if people do not comply with the cap table?

If investors do not comply with the cap table, the board of directors may request a revision to see if the investor is suitable for the company’s decision-making process moving forward. The board of directors team may even host a meeting to remove any of its directors should there be a problem or trouble they may have for the company.

Those people that do not comply with the cap table management are required to surrender the remaining shares of the company and would not be able to make any decision for the company moving forward.

Conclusion

The Cap table management team holds a vital role in the outcome of the business. The business management team that oversees the cap table must be able to draw in investors to invest in the company while not having too many investors that buy into the company, therefore over-diluting the company.

Having a final decision for the company is important. Having a business owner who knows how to manage the company’s cap table would prove invaluable in the startup’s growth. Have queries on how to handle these properly? Reach out to our experts for guidance, ideas, and execution. At Eqvista, we have our online cap table software; check it out here.