It is very important for a company to keep a careful track of equity and debt ownership and share options. For decades, securities ownership has been recorded on vulnerable excel spreadsheets, often neglecting the corporate responsibility for directors to keep shareholder registration up to date. The recording of securities holdings in the register has legal implications and under UK corporate law is the only source of current information about the ownership structure of a company.

A shareholder register contains at a minimum the following four elements:

1. The name of the securities holder.
2. The full address of the securities holder.
3. The specific type and class of securities.
4. The number of securities held.

Sample cap table

A simple cap table is not complicated to manage, but the biggest mistake made by entrepreneurs is recording aggregated shareholdings for each holder, while the law requires separate entries and share certificates to be issued for each individual holding.

If a shareholder holds more than one share class or shareholder acquired shares as a separate allotment or transfers each holding has to be recorded as a separate entry. Each shareholding entry is represented with a separate share certificate. If any transfer is made from the shareholding (certificate), it is considered terminated and a new shareholding (certificate) has to be entered, representing any shares left in this specific holding.

For example, Mike held 1000 ordinary shares in the X Company, after the new investment at the next round he was allotted 1300 new shares, then he was transferred (bought) 500 ordinary shares from another shareholder. Two years later he transferred (sold) 300 shares to an external buyer, so Mike currently has a balance of 700 shares.

Excel-based cap tables or shareholder registers are static, so there is a limited array of corporate actions that can be managed with these records. At some point a company would either start to engage lawyers and accountants or would make a choice to migrate to a software solution, which would be significantly cheaper than the cost of legal and accounting fees.

Using an excel sheet will not help and will only cause many future complications. There are at least 5 main problems with cap table management on the spreadsheets:

1. Lack of transparency for shareholders and management, because spreadsheets are difficult to read and access management can be a challenge.
2. No real opportunity for investors to initiate secondary transfers and execute pre-emption rights.
3. The corporate financial team has to spend more time on routine compliance rather than focus on investment strategy and modeling of important future financial decisions to aid growth.
4. As the company grows, accountant and lawyer fees will rise to deal with the added to do manual securities administration.
5. Cap table is not integrated with youк funding rounds and annual filings.

There are number of services which the finance team would not be able to execute without a software solution or service provider:

– Share Certificates and its distribution to shareholders

– Execution of Share Transfers both for Directors and Shareholders (including Share Transfers forms for investors, including transfer restrictions automation and preemptions rights execution)

– Company House Filings such as the required Confirmation Statement (this submission will need to be automated as the number of shareholders grow. Manual updates will be complicated as shareholdings and transfers have to be registered separately)

– Official Registers: Register of Directors, Register of Members, Register of Secretaries, Register of Allotments (part of the new investment round), Register of Persons with Significant Control

– Share Options Issuance, Vesting and Exercise

– Debt and Share Convertibles Issuance and Conversion based on triggered automation

– Shareholder Communication and Reporting

– Dividend and Interest calculation with generated list of holders, their identities and payment details

– Generating and signing Board Resolutions, Subscription Agreement and other documents in a secure environment with the proper identification (KYC) of all parties

– Shareholder Voting and other corporate actions

It’s hard to imagine the Finance team doing all of this without software.

Many companies choose to migrate their company records from static spreadsheets to a digital platform at the early stage of their business development as it’s extremely secure and helps to keep the company organised and ready for the next funding round, options execution, share transfers and simplification of the annual Company House filings.

A smart, accurate and efficient way to manage cap tables, including share register management, employee share option schemes, digital voting and more is now available as a SaaS solution.

Utilising cap management software provides better capabilities, version control and corporate actions. Software solutions, such as Carta in the US and Quoroom in Europe are great starting places both for mature companies and early-stage founders. Quoroom has a freemium version for companies with up to 10 shareholders, so startups and SMEs can digitize their cap table, executive equity related corporate actions and still pay nothing for years.

Quoroom’s unique all-in-one software solution includes a fundraising workflow tool to manage investor pipeline, connect with new investors, close a funding round with all necessary legal documents, then issue securities and maintain shareholder relations. Fundraising management solution is fully integrated with the cap table and this tool comes free of charge for all companies utilising cap table management.

So now, when you issue equity options to your employees, exercise options or convertibles, or sign a deal with your investor, your cap table updates itself automatically.

Create a Quoroom account to digitize your cap table just in a few clicks.

Photo credit to Andreas Klassen on Unsplash