Equity management

Equity management

Author: The Carta Team
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Read time:  4 minutes
Published date:  6 October 2023
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Updated date:  16 May 2024
Equity management is the process of creating and managing owners in your company. Learn more about what it involves and how Carta can help.

Giving employees equity is more than a perk – it’s an investment in your company’s success. But with this particular investment comes the obligation to track and manage the equity you’ve distributed. 

Equity management doesn’t stop with your employees; investors and board members are also stakeholders. Without a streamlined process for updating company ownership, you risk jeopardising the trust (and future funding) of your investors. The admin, paperwork and communications surrounding equity management can be challenging – there’s a lot that goes into it, particularly as your company grows.

What is equity management?

Equity management is the process of creating and managing ownership in your company. It involves:

  • Tracking and reporting changes in ownership on your cap table

  • Updating equity documents (e.g. share option plan rules and share purchase agreements)

  • Communicating changes with stakeholders

  • Consulting your board of directors and, if applicable, obtaining requisite approvals from shareholders

  • Staying compliant with various regulatory and accounting obligations

What is equity administration?

Equity administrators are the people responsible for overseeing your equity management system and processes, as well as ensuring compliance. This includes maintenance of your company’s cap table and valuations.

Companies tend to hire an equity admin when they’re more mature (i.e. at Series C or beyond), but early-stage startups can also benefit from equity administration software. Implementing quality software early on means you can delay hiring an equity administrator until later, which will reduce your headcount and legal fees.

Here’s a deeper look at what an equity admin’s role typically involves:

Cap table management

A cap table is a record of all your company’s securities – including shares, options, convertible notes, warrants and other equity grants – as well as who owns them. The more securities your company issues, the more complex your cap table becomes.

An equity admin has several responsibilities, including:

  • Recording board-approved equity issuances

  • Processing exercises and transfers

  • Updating your cap table after a material event (e.g. a round of financing or a liquidity event)

  • Sending an updated version of your cap table to relevant stakeholders to comply with any reporting obligations you may have

Company valuations

If you want to offer equity in your company to service providers, you’ll need to get an appraisal called a valuation. The purpose of a company valuation is to determine the fair market value (FMV) of your ordinary shares, which helps your board set the price of a single share.

Different types of valuations expire at different rates. To grant options under tax-advantaged schemes like EMI and CSOP in the UK, you’ll need an HMRC valuation. Once it’s been approved by HMRC, your valuation is valid for 90 days or until a significant event occurs.

Issuing equity to employees or advisors who are US citizens – even if they reside outside of the US – requires a 409A valuation to be compliant with the Internal Revenue Service (IRS). 409A valuations typically need to be updated every 12 months or following a material event, whichever comes first. A material event is anything that could change the FMV of your company’s shares, such as a qualified financing round, a merger, an acquisition or any other significant business change.

Whose equity do you need to manage?

Equity management software allows you to distribute shares to various stakeholders – from co-founders and early investors to employees and advisors. We’ll break down what equity management means and the benefits for each party involved.

Investor stakeholders

Updating investors and employee stakeholders on your company’s growth and finances is a key part of equity management. The more knowledge and support your stakeholders have, the more likely they are to continue investing in your company.

Keeping stakeholders in the loop requires time and technology. In addition to issuing electronic share certificates, you may also want to send regular investor updates that detail:

  • Your company’s trajectory

  • Key financial metrics

  • Hiring updates

  • Customer wins

  • Investor requests (e.g. whether you need more funding or help with an introduction)

Companies using Carta can share business updates with investors through the platform. Investors are notified of new updates via email, and can browse all past updates in their account.

Employee stakeholders

Your employees are owners too. Equity management involves setting up an option pool, issuing options to employees and creating agreements detailing the terms of each issuance.

Employees often need additional resources to better understand their equity. They’ll benefit from having access to basic equity education, vesting schedule timelines, guidance on exercising their options and information about their tax liabilities.

Board members

Another crucial component of equity management is overseeing the board of directors. Most companies require board approval to issue equity, set up or expand an option pool, accept new rounds of funding and hire executives. All of these activities involve sharing sensitive documents, updated cap tables and valuation reports.

How to start managing equity

Evidently, equity management isn’t just a case of updating your cap table – it involves managing different types of stakeholders and satisfying regulatory and accounting obligations. As your company grows and you continue to raise funding, equity management becomes even more complicated.

Using one streamlined equity management platform can help you:

  • Stay organised. The right tools enable you to spend less time on paperwork and more time building your company.

  • Scale with ease. All your equity data is connected and automatically updated on a single platform, saving you time and money as you grow.

  • Stay compliant all year. Equity management software helps you keep track of your compliance with local tax authorities and the limits of employee share schemes.

  • Impress your stakeholders. Investors and employees can accept electronic securities, track vesting schedules and exercise their options in one secure location.

With Carta’s equity management software, your cap table automatically updates every time you issue equity. Carta also provides scenario modelling for financing rounds and exit events. These reports – which include waterfall tiers, liquidation charts, stakeholder proceeds and dilution modelling – are auto-populated with data from the platform and can be exported as a spreadsheet. Modelling gives you a better idea of how your company ownership will respond to changes like investor exits, new funding rounds and shifting share values.

Good equity management is critical to your company’s success. If you’re considering offering equity or developing an equity plan, Carta’s platform of software and services can help.


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The Carta Team
While we believe in assigning ownership at Carta, this blog post belongs to all of us.
DISCLOSURE: This publication contains general information only and eShares, Inc. dba Carta, Inc. (“Carta”) is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.