Founder Agreements Signed Months before Any Entity Exists
Pre-incorporation founder agreements bind promoters personally until formal entity incorporation, board ratification, and tripartite novation fully transfer obligations.
Cap Table Diligence
Meaning
An investigative audit procedure evaluates the complete capital structure of a corporate entity before equity financing or transaction execution. Conducting cap table diligence requires reconciling official corporate registers, board consents, option grant certificates, and convertible debt agreements against cap table spreadsheets. Unrecorded anti-dilution adjustments or informal equity promises create hidden liabilities that reduce investor ownership upon funding.
Discrepancy Remediation
Identification of discrepancies between legal agreements and share ledger entries triggers structured remediation protocols before closing. Historical stock issuances executed without proper board approval require formal ratification under applicable corporate law. Missing spousal waivers or uncollected stock purchase agreements can cloud share ownership, forcing founders to secure signed cleanup documentation prior to wire transfer.
Option Pool Settlement
Conversion mechanics and option pool calculations dictate the exact dilution borne by existing equity holders during round pricing. When option pools undergo expansion prior to investment, the effective pre-money valuation declines proportionally. Discrepancies in option exercise pricing or vesting acceleration schedules alter the fully diluted share count, changing price per share calculations.
Risk Exposure
Undisclosed equity rights expose buyers and incoming investors to post-closing ownership claims. Untracked phantom equity promises or informal advisor grants create actionable breach claims under securities laws. Reconciling capitalization records ensures clean equity transfer and prevents downstream litigation.