Working through the complexities of cap table tracking is vital to keeping a company’s equity structure accurate and transparent. However, some common mistakes can lead to errors with significant consequences. However, you can steer clear of these potential pitfalls with a few insights.
Errors in Data Entry
Transposed numbers and other mistakes in entering data can distort shareholder information and the cap table’s accuracy. Incorrectly entered stock transactions can produce discrepancies in ownership percentages, and inaccurate data can lead to critical issues during M&A or fundraising activities.
Excluding Vesting Schedules
The actual ownership of equity shares can skew the exact ownership percentages. The company may base its valuation on misinformation if they do not continually update the cap table tracking as shares vest. Overlooking employee options vesting can also create imbalances in the accuracy of equity ownership tracking.
Neglecting to Consider Convertible Securities
Companies must record the conversion of preferred stock or convertible notes accurately and promptly, as this is another issue contributing to inaccurate equity ownership figures. Additionally, to avoid any surprises in future ownership changes, companies must track details of future stock or note conversions. Failing to appreciate the complexity of these calculations can lead to misrepresented ownership percentages.
Poor Communication and Transparency
Failure to alert stakeholders regarding cap table changes is a problem because the lack of transparency creates mistrust and confusion. Investors, employees, and founders must all have access to accurate and timely information on the status of the company’s ownership.
For more information, contact Colonial Stock Transfer at www.colonialstock.com.
