Equity records: the cap table, vesting, options, and the general ledger

A cap table answers who holds which securities, and how that changed with each issuance, transfer, exercise, conversion, and financing. The general ledger answers how those events affected cash, equity accounts, expenses, and the financial statements. Neither can stand in for the other.

They should still agree. When a founder buys shares, an investor funds a round, or an employee exercises options, the cap table and the ledger should each show the event, on the same date, supported by the same document.

Founders usually buy their shares at formation for a nominal price and agree that the shares vest over time, often four years with a one-year cliff. If the company can repurchase unvested shares, keep the vesting schedule, the repurchase terms, and the start date in the file. A Section 83(b) election, filed within 30 days of receiving restricted stock, is part of that record.

If a founder leaves before vesting is complete, the repurchase is recorded in both the cap table and the ledger, with the board approval and the payment.

A grant sets a strike price, a vesting schedule, and a number of shares. Grants are tracked in the cap table and usually create stock compensation expense in the ledger, recognized over the vesting period. When an employee exercises, they pay the strike price, the company issues shares, and the entry records cash received and equity. Some exercises create payroll tax withholding or reporting, so involve payroll.

Setting the strike price at fair market value generally requires a valuation, often called a 409A valuation, and the report belongs in the file.

Expanding the option pool needs board and sometimes shareholder approval, and it dilutes existing holders. Keep the approval, the dilution math, and the updated cap table together. A stock split changes the share count and the price per share but does not change anyone's percentage ownership or the total equity. Update every share count in the cap table, the stock ledger, and any option agreements.

When the company buys back shares, the cost reduces equity. Record the board approval, the price, the payment, and the cancelled or treasury shares. Your attorney and accountant should confirm how the transaction is recorded.

Reconcile after every equity event and at year end, and before any financing. The test is simple: for every material equity transaction, finance can point to the legal document, the cap table entry, the bank record, and the ledger entry.