Vital to the success of a growing enterprise is the effective management of employment documents. This process, however, if not structured properly, can evolve into a highly chaotic and messy proposition.

Typically under the auspices of an HR Department, the purpose of these documents is to clarify the rights, accountabilities, and expectations for successful workforce engagement. Part of the employee record, they play a critical role in ensuring consistency in how workplace policies, procedures, and practices are applied.

These are among the documents commonly used to codify an employment relationship:

At Equa, we believe that compliance audits along with the need for organizational risk mitigation activity underscore the need for unalterable, timestamped, single source of truth documents. Other emerging trends informing Equa’s value proposition and solutions in this space include:

Companies are increasingly employing digitally signed records and other documents tied to workplace relationships.

The growing acceptance of “electronic signatures” as so-called wet signatures.

The need for easy access and identification of a single source of truth documents for workplace compliance audits and employer-employee disputes

HR cost and productivity savings associated with advancements in the management of records and permissioned access.

In today’s dynamic business environment where workplace disputes and compliance audits are common, seamless access to properly executed documents holds great importance. Equa’s innovative solution fostering frictionless, single source of truth documentation represents a major leap forward in this quest.

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When Corporate Governance Fails

Humans have organized the world through an infinite string of agreements and social contracts. Whether people agree to stop at a red light or get in line at the grocery store, a functioning society depends on these kinds of agreements. Managing organizations like nonprofits and corporations require layers of agreements between stakeholders.

At formation, organizations must abide by government policies by registering with the state and obtaining a tax registration ID. If these rules aren’t explicitly outlined by the regulatory body, they are covered by an operating agreement. Fully understanding the contents of your operating agreement and knowing your organization’s needs can save you many sleepless nights.

Aside from the largest liability of not having an operating agreement, to begin with, another common mistake includes assuming that all signatures have been collected to make the document legally binding.

As your trusted tax advisor will tell you, different organizations fall under different tax categories and your operating agreement needs to align, accordingly, from the start. Further, most businesses “set it and forget it” when it comes to their operating agreements. Similarly, changes in IRS tax policy may necessitate changes to your operating agreement. Equa brings dormant agreements to life via its cutting-edge technology.

The second major agreement that organizations must pay significant attention to is the capitalization table, often referred to as the “cap table”. Since this is a ledger deciphering who owns what and how much, the cap table needs frequent analysis to ensure accuracy as it can impact company valuation, capital raises and even recruiting talented executives.

Many cap tables are created using spreadsheet software and most cap tables have errors stemming from duplicated files that have been shared among multiple owners. Depending on basic spreadsheet software to account for true ownership when dealing with vested shares, options, dividends, transfers, buybacks and cancellation of vested shares due to employee termination can result in an accounting nightmare. Furthermore, correcting mistakes involves costly attorneys and accountants. Unfortunately, these mistakes are usually overlooked until a company is pursuing a capital raise. However, in today’s competitive capital markets, money may dry up while investors wait for a resolution to this oversight.

This is where Equa can help!

As a technology company, Equa understands these problems and has built an incredible team of entrepreneurs and developers to automate the management of operating agreements, as well as the organized maintenance of a cap table. Our technology empowers any organization to swiftly make decisions covered by an operating agreement. Every vote is captured and recorded securely and in real-time through our web application and mobile app.

Fundamentally, this process reduces friction by adding velocity and accountability to organizational management such as owner or director level decision-making processes. Our technology also includes a single source of truth that allows a fully transparent and auditable ledger of an organization’s ownership. The combination of Equa's advanced agreement and ownership management provides peace of mind to busy business owners. Further, our tools provide them with the ability to timestamp and permanently store their decisions in a system for easy dispute resolution and reconciliation in the future.

Equa: Frictionless agreements. Cap Table Management. Business Simplified

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Maintaining a clean, paper trail of securities transactions is a prevailing issue for many companies. At the nexus of this is SEC Rule 144, which stipulates that certain conditions must be met in order for the sale of securities to take place.

The effective tracking of securities is vital for private companies seeking to enter the public marketplace. Steering clear of knotty compliance issues and delays pursuant to any SEC due diligence reviews is paramount.

A key qualifier for the Rule 144 exemption is meeting the holding period for each security issued prior to resale. Pursuant to the Securities Exchange Act of 1934, an issuing company that’s also a reporting company has a qualifying holding period of six months. For those companies that are not in a reporting capacity, the qualifying holding period is one year.

This holding period commences on the original issuance date of the security, irrespective of resale or conversion. Many private companies, however, fail to track and account for this on their capitalization tables. This can be problematic if an audit is ever conducted.

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What Is an Option Pool?

An option pool consists of shares of stock reserved for employees of a private company. The option pool is a way of attracting talented employees to a startup company - if the employees help the company do well enough to go public, they will be compensated with stock. Employees who get into the startup early will usually receive a greater percentage of the option pool than employees who arrive later.

The initial size of the option pool may decrease with subsequent rounds of funding because of investors' ownership demands. The creation of an option pool will commonly dilute the founders' share in the company because investors (angels and venture capitalists) often insist on it.

KEY TAKEAWAYS

How Option Pools Are Structured

The shares that comprise an option pool typically are drawn from investor stock in the company rather than the shares earmarked for investors. This may be 15%–25% of the overall outstanding shares and may be determined when the startup receives its earliest funding round as part of the overall terms put in place.

It is also possible that a company, over the course of its development and subsequent funding rounds, may establish additional option pools after the initial one is put in place. The size of the pool may be dictated or advised by the venture backers to be a portion of the pre-money or post-money valuation of the company. Negotiations over the scope of the option pool can affect the startup’s overall price. For example, investors may want an option pool offered post-money option to be priced at the pre-money valuation, which could lower the price for the company.

Other Considerations

The shares disbursed from the option pool may be determined by the roles of the employees as well as when they are hired. For example, senior management that is brought on board near the founding of the startup may receive a percentage of the entire pool, whereas later employees in more junior roles might be granted just fractions of a percent.

The option pool grants shares that, like other types of stock options, often require a period of time before they are vested. This means the employee will not be able to benefit from these shares possibly for several years. By delaying their ability to reap monetary value from their portion of the option pool, the belief is that the employee will contribute more to the overall health and growth of the company in order to see the greatest possible gains when the shares vest.

A corporate entity is a business structure formed specifically to perform activities, such as running an enterprise or holding assets. Although it may be comprised of individual directors, officers, and shareholders, a corporation is a legal entity in and of itself.

Generally speaking, there are three general forms of legal entities through which business can be conducted: (1) sole proprietorship, (2) corporation, and (3) partnership.

There is also the limited liability company (LLC), a business structure that can integrate the pass-through taxation of a partnership or sole proprietorship with the limited liability protections of a corporation. LLC’s are technically not a corporation under state law. Rather they are legal structures that deliver jurisdictional limited liability protection to business owners.

These various forms of entities are legally able to enter into agreements or contracts, purchase property, assume obligations, open a bank account, incur and pay debts, sue and be sued in their own right, and issue stock under their business umbrella.

Businesses throughout the world utilize corporate entity structures. A corporation’s most important attribute is its limited liability provision. This allows shareholders to accrue profits through dividends and stock appreciation without being personally liable for company debt.

Establishing a Corporate Entity

Corporations are created through an incorporation process initiated by either a single shareholder or a group of shareholders with ownership rights to the corporation. This begins with the filing of Articles of Incorporation in the state jurisdiction where the corporation is seeking to be registered.

A filing can occur in a state outside of where the corporation is located. States like Delaware, Wyoming, and Nevada have favorable incentives for companies registering in their geographic locations. These corporations, however, are required to register as a “foreign” corporation in the state where they actually reside and engage in their business operation.

In these out-of-state scenarios, a corporate entity is typically required to designate a registered agent (a person or company designated to serve as the legal contact of record).

Another benefit of corporations is their ability to provide for unending succession. So, they may technically exist in perpetuity unless dissolved.

A corporation can be set up as a non-profit, as in the case of a charity. However, the vast majority of corporations are established with the intent to provide a return for its shareholders.

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A “Cap Table” (short for “Capitalization Table) is a document, typically in the form of a spreadsheet or table, that offers a snapshot of a company’s equity capitalization and total market value.

While commonly used by startups and early-stage businesses, cap tables have utility for all types of companies. In the case of a new startup, the founders are typically the only ones represented on the cap table. This is because they’re the sole equity holders. But as a company matures, the volume of cap table entries expand pursuant to growth in the number of investors as well as company ownership changes.

These documents aim to capture shareholder equity and other sorts of information including common equity shares, preferred equity shares, warrants, and convertible equity. With this, cap tables become a vital decision-making tool for assessing equity ownership, market capitalization, and market value.

Given the financial significance of this information and the fact that companies are constantly evolving, it is paramount for a cap table to be accurate, tailored, and kept current and up-to-date.

One of the common pitfalls with cap tables is that a manually updated Excel spreadsheet can morph into more than one version.

By way of example, the company chief financial officer might manage one copy while outside legal council holds another version. So if a staff member exercises their option and the company forgets to provide an update of this to the lawyer (or vice versa), the two records become inconsistent. It’s here where the reconciliation of these records can become time-consuming and costly

There are many factors and emerging trends that impact capitalization. Therefore accurate and up-to-date cap table provides are paramount for fostering strategic direction and business growth.

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Corporate bylaws are a vital element of a newly formed company, providing key rules and regulations for operational effectiveness. They aredrawn up and codified by the board of directors when a corporation is being formed. This document helps to ensure that a business runs consistently from its inception.

Bylaws thus become the critical document to aid the board of directors in their oversight of the corporation.

Terms included in a corporate bylaw are dictated by the guidelines set by a particular state. These typically include important information such as the following:

In most states, limited liability companies (LLCs) are required to create an LLC operating agreement. These operating agreements, essentially function as a set of corporate bylaws, offering guidelines for how an LLC operates as well as owner responsibilities. The documents are often key for responding to legal issues and are legally binding.

Typically LLC’s and corporations are not required to file bylaws and operating agreement documents with the Secretary of State office. They may, however, be requested by lenders, banks, attorneys, and potential investors for various business activities.

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Articles of Incorporation provide the basic legal framework by which a company operates in a particular state or jurisdiction. Considered a public record, it codifies key business activities, owner names, and stock information for the company.

For an LLC, this document is referred to as an “operating agreement.”It describes the operational activities for the company as well as owner responsibilities.

To register a business as a separate entity, Articles of Incorporation must be filed with the Secretary of State’s office in the locale in which the company intends to do business. LLC’s, however, are not required to have an operating agreement or even file one.

Each state has its own requirements for the filing of forms. Accuracy in reporting application information is critical as errors and omissions can put a business at risk for legal issues.

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How to successfully Raise Capital

Are you finally at the point where you need to develop a better process to raise capital?

Every successful task requires a good process. The more difficult and time consuming a task the more essential an effective process becomes. When it comes to raising capital, this can translate to whether your company hits its goals, achieves the desired valuation. With this in mind, what can you do to improve your performance?


Setting the foundation

With our clients, we advise them based on our past success and failures. This advice is a well-constructed soup to nuts process that entrepreneurs and early stage companies process that can be followed every in every round.

Key elements we instruct on, include:

·      Researching your potential investors

·      Getting advice early and often

·      Crating all the necessary collateral like pitch decks and executive summaries

·      Nurturing relationships

·      Choosing the terms

·      Following up

·      Negotiation

·      Closing the round

·      Delivering on promises to each investor.

Be Patient

When planning to raise capital, it is important to understand that investors aren’t going to invest in your company without having an established and valued relationship. Equally important to understand is that not every investor is the right investor. Therefore, taking the time to build relationships is key to future success as these individuals will often take on advisory roles or board seats. With that in mind, expect that raising a round will take months in the best of times. With the global Covid19 pandemic disrupting markets and spooking investors, it can take longer. So being patient and setting appropriate expectations will help ease minds as the next market disruption can happen at any moment.

As you go down this road, you will need to treat the capital raise process like sales. Each lead requires constant nurturing and follow up in order to close. Larger deals can take up to a year so even when you’re not raising capital you should be strengthening relationships.

Remember, set appropriate expectations, be patient, and start preparing for that next round today.

Uncertainty

When planning your process, it should be noted that there is no guarantee of success relative to your timelines, valuation, and financial benchmarks. This shouldn’t come to a surprise as every aspect of the entrepreneurial journey is riddled with roadblocks.


To that end, if you are willing to take on the advice form mentors and be humble and resilient you can get to the finish line. Willingness to adapt and change strategies will always be key tools to realize the goals set forth in your business plan and executive summary. Once again, expect unforeseen challenges like changes in the global markets to happen and be willing to do what it takes and be unreasonable when it comes to success.

When will it end?


Raising capital isn’t fun but it’s essential if you want to build growth and success. Making sure that you hold on to a positive state of mind will make a huge difference in overcoming each challenge. This is important to pass on to your team as they will be looking to you for guidance and leadership. Visualizing failure breeds apathy in those around you, whereas living future success in the moment will create a culture of resilience and tenacity.

Create a great pitch deck

Selling you vision requires a quality deck that follows a well-defined template. Without a great pitch and deck, it will communicate a weak message to investors that are inundated with deal flow. Consider the point that you are only as strong as your weakest asset. This is equally important in the quality of your team that must constantly execute despite lacking money or resources. 


Don’t be the smartest person in the room

Even people at the top of their fields look to get better or gain any advantage to stay at the top. Just look at Tony Robbins and Tom Brady. They are world renowned, very successful, yet they continue to find an edge. If they’re doing it so should you. Surround yourself with coaches, and experts to remove blind spots. When it comes to raising capital, seek out those that have a track record of success and absorb all that you can. Remember, you are competing with potentially hundreds or thousands of other entrepreneurs in your space for limited investor capital.


Network! Network! Network!

We live in a noisy world full of notifications, news feeds, texts, emails etc. Therefore, knowing how to get through to investors requires a lot of follow up work and relationship building. Be creative when it comes to getting through to those key investors. Learn who they are influenced by, learn who their gatekeepers are and use every type of communication to follow up with them in an attempt to build relationships with your targets.

Knowing what you don’t know

Every entrepreneur starts off with a different composition of skills, and weaknesses. Likely, raising capital is not among your strengths. Therefore, as you learn all the things you need to know to build a successful organization, add raising capital to that list! Sure, you can go and hire an investor relations ninja. However, being prepared to fight as though your life depends on it requires being knowledgeable when it comes to communicating, negotiation, networking and follow up. Regardless of your industry, being a constant student will improve your chances of not being ignored.

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