Efficient Stock Certificate, Option Plan and Cap Table Management

Stock certificates are one of the nuisances of a corporate law practice – a low-value administrative burden that is borne every time shares need to be issued, transferred, repurchased, or sold in a stock sale or merger transaction. The cost of all this manual labor, not to mention postage and courier fees, is not insignificant.

There is now a better way – electronic stock certificates and capitalization management – that I recommend for all of my startup and emerging company clients. A number of SaaS companies have been formed that improve everything about dealing with stock certificates, option plans and grants, and cap tables. The company that I have been working with is eShares, which is backed by prominent venture investors such as Draper Associates, Spark Capital, Union Square Ventures and Expansion Capital. Other electronic stock certificate companies include CapShare, Gust Equity Management, ExactEquity, and DocDep.

eShares is an extremely useful tool and is regularly improving and adding to its features. Here are some of the benefits that a company gets when using electronic stock certificates:

No more:

  • printing paper certificates
  • sending paper certificates by courier
  • collecting stock certificates when transfers occur
  • dealing with lost stock certificates and affidavits of loss
  • suffering mistakes that creep into Word- or Excel-based stock ledgers
  • difficulties in maintaining accurate cap tables

The ability to:

  • easily issue stock certificates, distribute them electronically, get signed confirmations of receipt, and transfer and cancel them when needed
  • maintain accurate cap tables, view them at various levels of detail, look back at cap tables as of prior dates or pro forma cap tables as of future dates
  • manage stock option plans and issuances
  • allow online option exercises and collect option exercise proceeds through
  • seamlessly handle restricted stock or option vesting
  • maintain an audit trail of issuances and changes
  • create transaction proceeds waterfalls based on different scenarios
  • allow stockholders and optionholders to easily track their investments and ownership percentages online
  • and more

For companies that already have multiple shareholders, classes of shares, and option grants, the initial transition does require an investment of some time and money. After that, the cost for all of the benefits of electronic stock certificates and cap table management is, by comparison to the traditional (old) way, quite affordable. For new companies that plan to have multiple shareholders, classes of shares, and option grants, I suggest starting on the eShares (or similar company) platform right away.