The Carta Handbook for Late-Stage Private Companies

The Carta Handbook for Late-Stage Private Companies

Author: The Carta Team
Read time:  16 minutes
Published date:  8 December 2023
Leaders at mature private companies have plenty to navigate on their way to an eventual exit. This handbook lays out key steps and provides tips.

Growing and scaling a startup is hard—even for experienced entrepreneurs. At every stage of development, founders and company leaders face a new set of expectations and challenges. But the stakes grow exponentially as a startup transitions to a late-stage private company (LSP) and inches closer to an exit. 

We put together this handbook to help leaders at other mature private companies navigate the later stages of private growth on their way to an eventual exit.

Common needs of LSPs

Most early-stage startup founders are laser-focused on building their product and bringing it to market. But LSPs must consider a new list of needs and questions that goes beyond the scope of product and go-to-market strategies. Some of the decisions they make—such as hiring new executives or changing the way equity is issued to employees—can have long-term impacts.

Most early-stage startups are familiar with things like issuing and exercising option grants. As an LSP, they’re likely to start pursuing more complex actions that impact the cap table. Below are some of these key considerations, along with ways that Carta can help.

These topics are presented in a rough chronological order, starting with items that companies should consider as they begin to advance through the venture lifecycle and continuing all the way through the lead-up to an exit. 

Stock splits

Stock splits (or reverse stock splits) increase (or decrease) the number of shares outstanding. They are typically used by companies to change the value of their stock on a per-share basis without changing the overall value of the company. Many companies use forward stock splits (or reverse stock splits) ahead of an IPO to get their anticipated stock price within a desired range.

For example, say a company has 1,000,000 shares of common stock outstanding with a per-share value of $10, for an aggregate value of $10 million. If the company executes a 2:1 forward stock split, there will be 2,000,000 shares of common stock outstanding with a per-share value of $5, with the aggregate value remaining at $10 million.  

Actions in bulk 

As employee count increases, a company’s actions associated with headcount—think things like terminations and equity issuances to recent hires—will correspondingly increase. It’s helpful to have processes in place to efficiently complete these actions in bulk and reduce the time spent on administrative tasks.

PTEP extensions 

As part of a severance package or negotiation, sometimes a company will agree to extend the post-termination exercise period (or PTEP) of employees that hold option grants beyond the typical window of 90 days. Other companies have implemented broader programs where PTEP extension occurs automatically based on tenure or other milestones achieved by the departing employee.

The board of directors typically needs to approve PTEP extensions before they are reflected in the cap table. Any changes to prior issued option grants may have complex legal and tax implications and should only be completed with advice from your legal counsel. 

Rule 701

Companies are required to comply with Rule 701 from the moment they start issuing securities to employees and other service providers. Rule 701 is an exemption to federal securities law that allows companies to issue a certain amount of securities to service providers without disclosing information about the risk of acquiring those securities.

Once certain threshold limitations related to time and dollar amounts are exceeded, companies are required to disclose information about the company’s risk profile to service providers.

Companies should always monitor 701-eligible grants closely, but this becomes more critical as a company becomes an LSP and likely gets closer to exceeding the threshold limitations. Companies can monitor thresholds using this report, and when threshold limitations are eventually exceeded, they can send the required disclosures to stock recipients through Carta. 

Pour-over stock plans

Due to tax rules, company stock plans expire after 10 years. If a company is still functioning at that time, it may still have outstanding options under the original plan post-expiration. When those outstanding options are no longer outstanding (for example, an employee departs with unvested options), some companies choose to have those shares that would have otherwise recycled back into the expired plan (and thus retired) “ pour over” into a newly created stock plan that will be the source of all option grants going forward.  

Cap table audits

Most early-stage startups have had a lawyer or investor audit their cap table as part of a financing transaction (particularly around the Series A). As LSPs grow larger and more complex, the stakes for any errors grow higher, and cap table audits become more critical. The importance of audits increases when preparing for an exit. 

Carta generates several reports that can assist with cap table audits:

We also recommend attaching applicable documentation to stock certificates to ease the auditor’s review of the underlying stock agreements.

Financial reporting

As a company matures, its financials will be scrutinized. Financial health is the most important metric by which a company is measured, so executives need to be confident that they’re always working with correct numbers.

Carta provides financial reporting infrastructure for stock-based compensation that connects directly to a company’s cap table to ensure audit-defensible financial statements. Some of these tools include dilution reports, customized property and cost-center expense filtering, and non-market performance grant expensing. To learn more, please reach out to  

Secondary liquidity

The longer a company has existed, the more likely it is that some employees and other service providers will hold substantial portions of vested equity. Many of these long-term equity holders desire to get cash off the table before the exit. Sometimes, that push for liquidity is so strong that it helps drive a decision to exit earlier than a company otherwise would have. 

One way companies can coordinate secondary liquidity is through tender offers, a form of company-sponsored transaction where the company is typically involved in establishing criteria for eligible buyers and sellers and in setting the terms of the offering. Tender offers must be structured and run in accordance with SEC rules, with the defining features being a required offer window of at least 20 business days and certain disclosure obligations.

If a tender offer doesn’t fit within a company’s current priorities, some stockholders may satisfy the need for liquidity by using outside brokers to find buyers for their stock. These unstructured, brokered transactions can generate legitimate concerns around a company’s stock price and buyer persona, and they can create administrative hassles associated with understanding, tracking, and recording these transactions. 

Our private capital markets team can help design and execute secondary liquidity programs that best fit a company’s specific needs and governance policies. For more information on Carta Liquidity’s solutions, reach out to

Expanding the C-suite and team

LSPs have higher risk profiles than early-stage startups. They’re likely moving into new markets and hiring exponentially more people, and investors are taking a more critical eye to their financials. This is the time when many companies start thinking about expanding their teams to fill knowledge and expertise gaps around areas of growth.

Carta offers several tools to help companies find and assess the best candidates to meet their specific needs:

Carta’s network of compensation specialists can also help LSPs preparing for an IPO design and implement a data-based compensation structure that will flow seamlessly into their next phase as a public company. If you’d like to tap into our network of compensation specialists, please reach out to

RSU programs

Startups that advance to become LSPs have likely seen a dramatic increase in valuation over the company’s lifecycle. This also means their 409A valuation has increased—perhaps to the point that aggregate exercise prices on the option grants held by employees become prohibitively expensive. LSPs might have other goals that put strain on their existing option plans, such as an impending exit event, updating compensation packages to better compete with public companies, or a desire for less dilution on their cap table. These are all reasons why some LSPs choose to switch from option grants to restricted stock units (RSUs).

We have a training session on this exact topic here (if you are a lawyer licensed in California or New York, you can receive MCLE credit for watching). Here are a few important points:

  • There are two types of RSUs that private companies issue:

    • Double-trigger RSUs have both a time-based vesting condition and a milestone vesting condition. The milestone is always an M&A event or IPO that occurs within a certain time frame, typically five to seven years. Companies issue double-trigger RSUs to defer the tax event until the company exits.

    • Single-trigger RSUs only have a time-based vesting condition. The employees get their stock before exit but have a tax obligation at each settlement event.

  • Holders of double-trigger RSUs cannot engage in secondary liquidity (because those RSUs don’t vest until the exit event), except in a very limited circumstance where the board of directors waives the milestone vesting condition. More details about waiving the milestone vesting condition can be found here.

Carta supports issuance, vesting, and settlement of RSUs on our cap table software. We can also assist with distribution of 701 disclosures to RSU recipients prior to the issuance of their award.

Tax upon acquisition or sale of equity

As an LSP matures and its growth accelerates, the potential tax exposure for the company and its stockholders increases because the value of the company’s stock is tracking with its overall growth. At this stage, it is particularly important to provide increased education for equity holders around events resulting in tax liability (i.e., actions taken by the company or stockholder that result in tax being owed).

The most commonly encountered tax event is the acquisition—and subsequent sale—of private company securities. Depending on the type of equity issued, the timing and amount of taxes due varies. You can find resources on how typical award types are taxed here:


Qualified Small Business Stock ( QSBS) is a U.S. tax benefit that allows eligible stockholders of a qualified small business to get a break on paying capital gains taxes upon the sale of their qualified stock. It’s a big incentive for founders to start companies and for investors to invest in startups (which tend to be riskier investments).

Many financing documents include covenants and representations about QSBS. The QSBS exclusion can help eligible founders, employees, investors, and other stockholders avoid paying federal capital gains taxes up to $10 million upon the sale of eligible shares. Eligible investors can owe potentially zero federal capital gains tax on up to 10x their original investment, or $10 million, whichever amount is greater.

As a company matures, it's normal to start taking actions that put the company at risk of losing status as a qualified small business. As inbound requests for QSBS status from investors and employees become more common, Carta can work with management and legal counsel to review a company’s eligibility and generate attestation letters that confirm status as a qualified small business.

At Carta, our analysts conduct an in-depth review during your company’s 409A valuation to confirm QSB status—and having your 409A and cap table information on Carta enables us to generate this evaluation with no operational lift on your end. 

Learn more about how Carta helps companies check and maintain their QSBS eligibility. 

Mitigating regulatory risk

When a company first forms, it often puts minimal effort toward mitigating regulatory risk. There are a few reasons for this:

  1. Unless the company is in heavily regulated industries like health care and life sciences, payments, financial services, or other similar industries, the regulatory regimes that govern startup companies are relatively straightforward, including things like data privacy and employment matters. Many corporate or commercial lawyers can and do advise on these issues.

  2. An early-stage company’s customer base is relatively small (compared to what it will be as an LSP) and there may be less market competition, so the chances of non-flagrant failures to comply being flagged to regulatory authorities may be lower.

  3. Companies tend to be more risk-tolerant at early stages because the consequences of a failure to comply with regulatory requirements may be relatively low, and the company may have limited assets at risk—but regulatory risk may increase at scale.

This tolerance for risk shifts dramatically as a company matures. The customer base grows, the company crosses jurisdictional boundaries, and the breadth of its product offering expands into more regulated markets.  

It’s important to consult experts in these more-regulated fields. It’s also important that a company be familiar with the issues and understand how issues that impact its business are trending. Understanding risk factors becomes more important as companies grow. 

Risk factors disclose risks and challenges that could result in negative outcomes for the business. Most people are familiar with risk factors as part of an S-1 or annual/quarterly filings for public companies. But risk factors are also required in Rule 701 disclosures by private companies. Lawyers will help draft the exact risk-factor language, but the company needs to help them understand the exposures and challenges that inform the risk factors.

Building this familiarity also helps a company keep tabs on impending regulatory changes that might impact its business. Carta’s Policy Team publishes a weekly newsletter with policy and regulatory updates relevant to the innovation economy. You can also find other informative policy-related content on Carta’s Policy Desk.


LSPs (especially those preparing for a potential IPO) will need to receive more frequent 409A valuations and ASC 718 expense accounting reports. Those valuations need to be “audit-ready"—this means they must be conducted by an independent valuation provider and be able to handle increased scrutiny from auditors. If a company does conduct an IPO, its valuations must also pass muster with the SEC. 

Once a company decides to go public, any equity it issues will also receive increased scrutiny from auditors and the SEC. That scrutiny will only increase once the company submits its initial S-1 filing. More specifically, auditors and the SEC will take a skeptical look at any equity issued below the anticipated listing price.

Companies can get ahead of this scrutiny by increasing the frequency of their 409A valuations in the lead-up to listing day. The Carta valuations team frequently sees the following cadence for pre-IPO companies:

  • 18-24 months before IPO: Semi-annual 409A valuations

  • 12 months before IPO: Quarterly 409A valuations

  • Some companies move to monthly valuations if they are issuing significant equity grants in the last few months before IPO, or if operations within the company are shifting dramatically

Exit planning


Most successful companies exit one of two ways: M&A or IPO. An overwhelming majority of these companies exit via M&A. The all-time record for IPOs was in 2021, when 1,035 companies listed in the U.S. Compare that to the 10,797 M&A deals reported by Pitchbook in the same period.

M&A deals can be the exciting culmination of years of hard work building a company. They also can be complex and time-consuming. That’s why we put together this downloadable guide to help explain the M&A process and how Carta can help. The guide covers frequently asked questions about things like:

  • Diligence prep

  • Deal modeling

  • Closing logistics

As a company approaches an exit, stakeholders will likely ask for models and information that illustrate their potential returns. Carta offers bespoke waterfall modeling tools to calculate exit scenarios based on potential inputs for both venture capital and private-equity-backed companies.  


An initial public offering (IPO) is when a company raises capital by listing its stock on a public exchange, allowing the stock to be bought and sold by retail investors. Most companies consider IPOs the gold standard as a way to exit. But most companies won’t exit via IPO. For the ones that do, it’s a long process that starts (at a minimum) 18-24 months before the bell rings on the trading floor.  

Companies considering an IPO have a lot of strategic decisions to make, including the structure of the public offering, audit review, vendor selection, and preparation of the registration statement. From the founder considering taking their first company public, to the seasoned executive looking to understand how to seamlessly transition between vendors, our IPO Readiness Guide breaks down the process from start to listing day.

How Carta can help

Want to dive deeper on any of the topics discussed here? Need to escalate an issue of particular importance? Your customer success manager is always available to help you navigate anything you need within Carta. Not sure who your customer success manager is? Reach out to the Admin Services team and they’ll route you appropriately.

Reaching the status of LSP is a huge accomplishment, so remember to take a minute to bask in that milestone. And then remember that Carta is here to help make doing your job easier and more effective, just as we’ve always done.  


LSP Glossary

Was there a word in here that you’ve never heard before?  Did a director say something in a board meeting that confused you? We get it—the language of private companies changes with maturity of the business. So we put together a list of practical definitions of common LSP terminology so you always have the information and insights you need.

701 disclosures

Rule 701 is a securities exemption, most commonly used with securities issued to employees and other service providers out of a stock incentive plan. There are certain rules that must be followed to maintain the exemption, including a maximum amount of securities that can be issued pursuant to the exemption. If a company exceeds that maximum, it is required to disclose additional financial and investment risks to recipients of those securities.

ASC 718

Accounting Standards Codification Section 718 ( ASC 718) provides guidance to companies on expensing equity compensation to employees on their financial statements.


An audit is a review and evaluation of a company’s financial statements, meant to ensure those statements are fair and accurate representations of the financial condition and transactions of the company.  

Cheap stock

A term used to describe stock, options, or warrants issued within 18 to 24 months of an IPO that are priced significantly below the IPO listing price. Companies can submit a “cheap stock letter” to the SEC to proactively explain why the prices at which the equity was issued was reasonable.

Direct Listing

Going public via a direct public offering/direct listing means that the private company lists its shares on a stock exchange but does not actually issue new shares or sell any of its own shares. All sales immediately following the direct listing are done by existing stockholders and not via underwriters.


The Electronic Data Gathering, Analysis and Retrieval system for the SEC. Public companies submit documents to the SEC through EDGAR, as required by the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, and the Investment Company Act of 1940.


Generally accepted accounting principles are the accounting standard that most U.S.-based companies use when preparing financial statements.


International Financial Reporting Standards are the accounting standard that most non-U.S. companies use when preparing financial statements.


An initial public offering is the first time a private company lists its stock on a public exchange, such as Nasdaq or NYSE.

IRC 409A

Internal Revenue Code Section 409A contains the rules that private companies must follow when deferring the tax obligations on compensation. Section 409A most commonly applies to the price at which private company stock options are granted.

Lead left

Lead left refers to the underwriter listed in the top left corner of the prospectus during an IPO. The lead left is the underwriter that runs the IPO process and leads negotiations.


An agreement by the issuer’s existing shareholders, directors, officers, and option holders to not sell any of their shares during a period following the IPO (typically 180 days, though companies may allow early releases).


Late-stage private company


M&A refers to “ mergers and acquisitions” and is used colloquially to describe transactions where one company (the buyer) purchases all or a portion of another company (the target).


The Public Company Accounting Oversight Board is a nonprofit corporation created by the Sarbanes-Oxley Act of 2002 to oversee the audits of public companies.


A “private investment in public equity,” or a private placement of securities of an already public company that is made to selected accredited investors


Qualified Small Business Stock ( QSBS) is a U.S. tax benefit that allows eligible stockholders of a qualified small business to exclude capital gains from taxes upon the sale of their qualified stock

Retail investors

Individual investors who invest in public markets via a broker. If you have a personal brokerage account that you use to buy and sell stock in public companies, you are a retail investor.

Risk factors

Risk factors disclose risks and challenges that could result in bad outcomes for a business. LSPs will most commonly disclose risk factors as part of 701 disclosures. They are also required in an S-1 and annual and quarterly filings for public companies.  


A series of presentations, usually given by the CEO and CFO, to underwriters and buy-side institutional investors. Underwriters use the roadshow to gauge the level of demand for the company’s stock in an IPO.


A restricted stock unit ( RSU) is a promise from an employer to give an employee shares of the company’s stock (or the cash equivalent) on a future date, once certain vesting conditions are met.


The Form S-1 is the SEC’s template for the initial registration of new securities for U.S.-based public companies. Investors use the information provided in the S-1 to decide whether or not to purchase the securities being offered under the registration statement. The S-1 is required to be filed with the SEC before any shares can be listed on a stock exchange.


The Securities and Exchange Commission, which is charged with enforcement of the laws that govern securities trading.


A Special Purpose Acquisition Vehicle. Going public via a SPAC means a private company is acquired by a publicly traded shell company. A SPAC raises capital through an IPO specifically for the purpose of acquiring a private company and then has a set window of time to find a target, typically one to two years. The acquired company becomes publicly traded via a reverse triangular merger and receives the SPAC’s original IPO proceeds in the transaction.

Transfer agent

Transfer agents maintain the company’s securities records and act as a liaison between the company and the stockholders. 


An underwriter, also known as an investment bank or bookrunner, is a bank that buys shares directly from the company during an IPO and then resells them to the public. Large IPOs typically have multiple underwriters to reduce the risk for any one bank. The “lead left” underwriter is the most coveted position, because it runs the process for the other underwriters.

Example job descriptions



Example Job Description


Government Affairs

Interacts with local, state, and federal legislative bodies and government agencies to represent and protect the organization’s business plans and interests.


Regulatory Affairs

Responsible for obtaining and maintaining government approval for drugs, medical devices, nutritional products, and related materials. 



Develops growth strategies focused both on financial gain and customer satisfaction. Evaluates and manages new strategic business opportunities, initiatives, mergers, acquisitions, partnerships, alliances, and/or joint ventures. Conducts research to identify new markets and customer needs.



Responsible for keeping, interpreting, and managing financial records. Ensures that a company’s financial analysis and statements are compliant with regulations and generally accepted accounting principles. Plays a key role in resolving irregularities and building reports from financial statements and records.


Financial Planning and Analysis

Tracks a company's financial performance against a plan, analyzing business performance and market conditions to create forecasts, and advises on financial strategy.



Responsible for overseeing supplier relations; evaluating suppliers, products, and services; negotiating contracts; and ensuring that approved purchases are cost-efficient and of high quality. Develops strategies to reduce procurement expenses.



Responsible for helping companies appropriately prepare tax returns while following legal guidelines and obtaining the maximum possible tax return. Analyzes financial information and makes sure the company is well-informed of the current best practices in tax.


Corporate Counsel

Advises employees and the company on a variety of legal matters. Prepares, reviews, and negotiates company contracts, requests for proposals, and other legal documents. Negotiates and drafts contractual agreements such as real estate leases, and advises on employment matters. Develops, or assists in developing, the organization's policies on industry-specific issues, corporate governance, and regulatory affairs.



Responsible for keeping a company’s activities within the guidelines, regulations, and ethical expectations of their field. Duties include monitoring business operations and reporting infractions, reviewing company policies for possible risks and liabilities, and researching legal requirements for new initiatives.


Contract Attorney

Develops, negotiates, and evaluates company contracts on behalf of an organization. Duties include negotiating contract terms and conditions, analyzing potential risks, and helping employees and leadership better understand the information outlined in contracts.



Organizes and maintains documents in paper or electronic filing systems. Gathers and arranges evidence and other legal documents for attorney review and case preparation. Writes or summarizes reports to help lawyers prepare for trials. Drafts correspondence and legal documents, such as contracts and mortgages.

The Carta Team
While we believe in assigning ownership at Carta, this blog post belongs to all of us.