Carta implementation: When and how to involve your legal team

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In an effort to bring down legal fees, companies tend to involve their attorneys at the end of the [onboarding] process, simply to review the data previously imported by the company. On average, though, this “final review” will cost 2.5x more money than having your attorney handle the data migration from the beginning.

Company administrators usually understand the current state of their equity distribution. Typically, however, they don’t have every piece of transaction paperwork readily available. 

When reviewing our onboarding data, we noticed a pattern with delayed implementation projects. Most of the implementation delays – 56% of them, to be precise – had one aspect in common: Uncertainty about the company’s cap table history. 

Carta’s onboarding process revolves around 4 steps:

  • Data collection – Cap table and Articles of Incorporation to get started
  • Kick Off Call – Sync with your onboarding manager to go over missing data points and clear any questions
  • Data Reconciliation – Making sure your cap table is accurately reflected on Carta, providing additional documents when applicable
  • Sign Off – Verify the cap table and sign the securities

Whenever a company submits a cap table with a large number of historical transactions, and legal counsel is not involved in the onboarding process, the Carta Implementation Team knows there will likely be some friction retrieving the data we need in order to populate Carta. 

We asked our partner law firms, as well as founders who went through the Carta onboarding process: What are the major roadblocks when implementing a new company on Carta?

There are a few things to consider when choosing how to approach your implementation.

Do you have all your cap table documentation?

If your company was incorporated recently, and you have all the supporting documentation for your cap table in-hand, your company is likely to be fast-tracked in our implementation process. We’ll ask you to upload your documents, sync over email to clarify any questions, and set up a call to activate your account. 

Even if you have a large number of historical transactions on your cap table, as long as they’re clearly documented and can be traced back to their original issuances, it’s likely that you can successfully spearhead the implementation process yourself.  

Carta’s setup guide will still require a Legal administrator to sign off on your cap table. 

Are you missing cap table documentation?

In this scenario, your legal counsel will be fundamental to a successful implementation. To illustrate the most common issue we see in implementation projects, let’s use an example:

Emily Wilson holds 10,000 common shares in Meetly Inc, listed in Excel.

On the surface, this seems straightforward. However, the path to 10,000 shares is anything but simple. In this instance, let’s pretend that Emily exercised 2,000 ISO options from an old equity plan, which was later subject to a 1:10 stock split. Half of those shares were subsequently transferred to Emily Wilson Family Trust, leaving Emily Wilson with 10,000 shares. Oftentimes, these historical details are difficult to track down in Excel and may live in external documents. 

Transactions like Emily’s are complex. When asked to confirm things like the issue date for the original ISO grant, the exercise price, the stock split date, and details of the transfer, the process of tracking down this information can be complicated. It’s understandable, then, that founders and executives aren’t always on top of past cap table events or historical transactions. 

When this happens, getting help from legal counsel is not only important, but fundamental to providing a seamless implementation process.

According to the top law firms in the US, if company administrators are unsure about their cap table, the most cost-effective measure is to involve legal counsel from the beginning.

In an effort to bring down legal fees, companies tend to involve their attorneys at the end of the process, simply to review the data previously imported by the company. On average, though, this “final review” will cost 2.5x more money than having your attorney handle the data migration from the beginning. This is because when involved at the end of the process, the legal team needs to find and address each mistake made by the company. In general, this process is harder (and considerably more expensive) than simply importing the company’s data from the beginning. 

The most common mistakes, as indicated by the law firms, are historical transactions, SAFE/Note conversions, vesting schedules, and restricted stock certificates.

 
Since your cap table is the basis of your company’s ownership, Carta’s mission is to be the single source of truth. To achieve this, we need to start with accurate and complete data. Keep in mind: While Carta’s team will help with your data migration to the system, we will never provide legal advice.

If you don’t yet have a law firm on your side, we can help. You can reach out to partnerships@carta.com to chat with our team.

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