Transaction Readiness Checklist

The cap table is one of the most important data reports for a private company and can be even more critical when a company is planning a broad-based liquidity event. 

Having accurate, full and centralized capitalization data – including equity holdings and transaction data, can help plan administrators answer questions effectively and provide data. In addition, it can also assist with data clean-up efforts, such as tracking down paper certificates or verifying complicated transfers.

Accurate demographic data for plan participants is important for precise reporting and ensuring tax withholding and distribution calculations are accurate. 

For companies with distributed work forces (employees operating across multiple, geographically dispersed locations), it can be important to give plan participants a simple way to update their demographic data related to equity awards.​

Accurate contact information for employee and non-employee plan participants can be key to staying transaction ready.

Plan administrators will want to ensure they can proactively contact outside participants - specifically investors, consultants, and former employees, so that as a transaction progresses, they can efficiently communicate transaction details and request any necessary documentation and/or signatures.

Establishing the right systems and infrastructure early in the process can materially reduce delays and operational friction later.

However, companies planning to go public may also want to ensure those systems can scale along with the transition to public company life where transactions are occurring daily. Allow for time for assessing existing equity plan management providers and systems and transitioning to a new one if necessary. Those types of projects may take upwards of six months to complete.

As companies manage increasingly remote and mobile workforces, they may want to think about the impact to their global equity plans. Granting equity in a new location or for employees moving between different countries may trigger tax, securities, and regulatory requirements that companies may need to consider.

Step one is ensuring that location data is tracked somewhere and gaining familiarity with international legal and tax regulations.

Developing a shareholder communication strategy early helps ensure participants have clear, timely information about their equity.

Helping participants understand their holdings, the mechanics of their awards and the impact of vesting and exercising, and the tax implications of different types of equity awards can help plan administrators minimize confusion and ensure shareholders have the information they need. Some companies may also find that their employees benefit from more robust financial planning and guidance.

Compliance with the robust reporting and information security requirements of the Sarbanes-Oxley (SOX) Act can be a big undertaking throughout the IPO process.

To prepare effectively, companies may begin by mapping existing processes and building documentation that aligns with SOX requirements. This early work can surface compliance gaps sooner, allowing time to address deficiencies before they become critical. Incorporating SOX-like controls into private-company processes ahead of the IPO can also help smooth the transition by building discipline and control maturity prior to public-company obligations.

Companies that are preparing to transition from private to public may also be considering issuing new types of equity awards such as RSUs, launching an ESPP, or moving to a multi-class stock structure. It’s important to understand the mechanics of these programs, classifications and how administration may change as a public company.

For instance, will taxable events and vesting schedules differ from existing grants? What new requirements will need to be met?

Companies may also want to think about how growth and retention in and around an IPO or liquidity event will impact their existing equity plan. Additionally, companies need to establish new share plans once they’re public. This exercise may be a collaboration between finance, HR, and compensation leaders to forecast how much equity will be leveraged to recruit and retain employees.

Understanding the design of future compensation programs, the impact to dilution, and how ongoing pool refreshes known as evergreen plans may be crucial to ensuring equity spend is managed closely and tracks to peer company market data.

Pre-IPO companies may need to plan for incremental headcount and related budget requests to ensure appropriate staffing through the public offering process.

Resourcing may include external consultants, transfer agents, and legal or accounting support needed both before and after the transaction. In addition to transaction execution support, companies may need ongoing resources to handle participant inquiries, like ticketing system and training for managers and HR.

Separately, IPO execution typically involves multiple internal and external stakeholder groups, and best practice is to identify them early and engage them throughout the process.”