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Equity Management

What is a capitalisation table?

Very simply, it's a summary of who owns the company.

More technically, it's a record of all equity shares, share options, convertible shares and warrants.

What are the common pitfalls?

Poor record keeping and incomplete records, especially in Excel when there are multiple versions of the same information

No idea how many share options have been issued

Don't know how many shares have been issued

No record of what notifications with have been with HMRC for share options

Information are all in different locations

Missed annual notifications - didn't know they had to be done annually

Equity in the balance sheet doesn't reconcile to Companies House

Not having a Register of Members, a statutory obligation from Companies House

Poor implementation of systems, when moving from Excel to a software

Poor processes and handovers between HR and the Finance team and the Legal team

Legal Registers

Along with maintaining a cap table there are three legal registers which must be kept up to date and accurate.

1) Register of Members with details of:

Shareholder/member name

Shareholder/member address

Shareholder/member start date

Shareholder/member leave date

Number of shares held (ordinary, a-shares, non-voting, etc)

Amount paid/consideration

All share allotments

All share transfers

2) Register of Directors with details of:

Directors name (and any former names)

Directors address

Directors date of birth

Directors country of resident

Directors nationality

Directors occupation

3) Register of People with Significant Control (PSC) detailing:

Hold more than 25% of a share in a company, or;

Hold more than 25% of the voting rights in a company.

Corporate governance

Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. This becomes more important as companies grow and there are more stakeholders involved who require transparency over decisions being made. In equity management it primarily relates to the below events:

Share authorisation

Option authorisation

New share class

Changing company articles

Variation of share class rights

Appoint/Terminate a director

With the key questions being:

Is a director/shareholder resolution required?

What pass rate of directors/shareholders are required?

Are there any directors/shareholders who must sign for it to pass?

Approved vs Unapproved Share Options

The main difference between approved and unapproved share option schemes is that any approved options exercised will not incur any tax for the employee at the point of exercise, as any tax due is deferred until the shares are sold.

However, approved share options can only be granted to employees that are eligible from businesses that are eligible. Unapproved options can be granted to basically anyone.

One of the most popular approved share option schemes is the Enterprise Management Incentives (EMI) scheme but there are other options, details of which can be found

here⁠

Equity management software

Equity management software can help to ensure your record keeping is accurate and compliance with legal requirements.

General benefits of using software:

Real time cap table

Issues shares instantly: generates resolutions and links to companies house

Generates share certificates

Scenario modelling and building

Audit trail

Guided set up and support

Corporate governance

Legal register automatically updated and submitted

Things to consider when choosing software?

Efficiency: does the software link with your HR system (for new employees, terminations, promotions)? does the software have the correct amount of automation?

Comprehensive: does the software cover the functionalities that you need to manage? Which country does it focus on?

Security: will your information be safe?

Items

Vestd

Capdesk

Carta

Seedlegals

Compliance

HMRC and Companies House (EMI notifications, EMI annual return, SH01, CS01)

Everything US

HMRC and Companies House (EMI notifications, EMI annual return, SH01, CS01)

Features

Full companies house integration

Focus on setting up and maintaining EMI schemes, eliminating lawyer costs

Agile partnership: Set up conditional shares with equity rewards based on agreed performance milestones

Signatures using DocuSign

Employee and investor access to vesting schedules

Investor relations reporting tools

Multiple level of access for company administrators, lawyers, accountants

Share transactions: Private secondary market and handle transaction

409A valuations: an appraisal of the fair market value of your startup company's common stock

Calculation in accordance with ASC718 for expenses and filing of form 3921 detailing employees who exercised options in the tax year

Focus on fundraising with additional support for convertible loans and advance subscription agreements

SEIS/EIS scheme set up

Software integration

Potential HR integration with customization of tool

Accounting - Xero, Quickbooks HR - Bamboo, Namely

Security

All data transferred to and from Capdesk is encrypted

Storage and security provided by Amazon Web Services

Daily backups of platform data

Pricing

£1,800/year for 1-10 (new and existing schemes) £3,000/year for 21-40 (new and existing schemes)

£600/year for 1-10 stakeholders £1,200/year for 11-25 stakeholders For quotes over 25+ stakeholders typical rates are per month are £2 per shareholder and £4 per employee There is an additional one-off set-up fee charged at the start of the contract for getting the platform set-up.

Starts at $2,800/year

£39 / month for cap table management with additional costs:

£250 for support with SEIS/EIS

£1,500 for EMI option scheme

£250 for Company policies

When to use?

Our preference if looking to get set up on an EMI scheme and maintaining the scheme.

Our preference for UK based businesses already been through a few rounds of funding which has led to a more complex cap table.

Our preference for a US based company

Our preference for a business with a very simple cap table also looking for support in submitting an SEIS/EIS Advance Assurance.

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