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Cap Table Management: Tips for Managing a Cap table


If you’re a private company founder or executive, you’ve probably seen a cap table that looks something like this before:

cap table spreadsheet example in excel

Cap tables come in all shapes and sizes but at a minimum they should display the holdings information for every existing shareholder. Before moving onto the Shareworks platform, most of our clients admitted to using Microsoft Excel to manage for cap table management (and more than a few were still using pen and paper).

Whatever method you use, you can stay on top of everything and avoid costly mistakes by implementing a few best practices. (Note: this isn’t a comprehensive checklist, but it should help you address the most important areas.)

Record basic share counts

Start with the basics: who are the shareholders, how many shares do they have and what percentage of the company do they own? It’s also important to separate out holdings by share type (common vs. preferred).

Start a central repository

You’ll also need to keep track of all legal documents related to the shareholders and at some point, you will likely start recording shareholder transactions and reporting to investors. Having a central repository for all this information helps avoid conflicting records and makes it easy for everyone to access information when needed.

Keep up with compliance

Compliance is pretty straightforward in the early stages, but more and more regulations come into play as your company matures. You want everything on your cap table to be legally correct and verifiable. A few consultations from a good attorney goes a long way here, so don’t be afraid to seek counsel.

Here is also a list of the most common regulations you should be aware of:

1.     ISO 100k limits stipulate how many options can vest in a given calendar year in order to qualify for certain tax treatment.

2.     IRC 409A regulations require you to do a formal valuation at least once a year to determine an appropriate strike price for options.

3.     ASC 718 (formerly FAS 123R) is an accounting requirement for measuring and recording the expense associated with issuing equity-based compensation.

4.     Rule 701 is an exemption from being required to register with the SEC in order to issue equity compensation.

5.     83(b) election pertains to an employee’s tax treatment of restricted stock awards, and if the employee wants to make the election it needs to be filed by the employee within 30 days of grant.

Keep everyone on the same page

It may seem obvious but having a single source of truth for your cap table is really important. Whether you designate one person to manage the cap table or several, it’s vital that any changes to the cap table are known to all of the relevant parties.

Why does this matter? You’ll end up with angry shareholders and investors if they’ve made decisions based on incorrect or out-of-date information, so make sure all parties are in the know.

Use Software Over Spreadsheets

We may be biased here but organizing and managing your cap table with cap table management software is far more effective than Excel. This is because spreadsheets are prone to error, and as we discussed in the previous section, one small error on a cap table can lead to countless headaches down the road. (we outlined five reasons to stop using spreadsheets here)

In the final section of this Cap Table Guide, we’ll look at an example of a cap table template and how an equity plan administration would be able to manage it.

Shareworks by Morgan Stanley, Morgan Stanley Smith Barney LLC, and its affiliates and employees do not provide legal or tax advice. You should always consult with and rely on your own legal and/or tax advisors. CRC 3507707-3/22