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Share Register and Projected Capital Structure
Legal Requirements
Every company is required by law to maintain a complete and current share register.
In British Columbia, the new BC Corporations Act requires every company to have a Central Securities Register which must set out all shares issued by a company, the name and last known address of each shareholder and the number, class and series of any shares owned by that shareholder. The full act is online here.
Share Registers Should Be Electronic
Today, there is no question that the share register can be an electronic file as long as it meets the other legal requirements in your jurisdiction. Share certificates can also be electronic. This is obviously the case because public companies do not maintain paper based share records any longer.
It is also generally the case, in modern jurisdictions, that all required communications with shareholders can now be done by e-mail. The laws in this area are still evolving in some places. To be safe, companies should include in their subscription agreements a check box for the investor to agree that all communications can be by e-mail.
It's less clear whether this means that a company can maintain a share register containing only the name and e-mail address of the shareholder. Some Corporations Acts specify "address" which is still generally thought to mean the street address. To be safe, companies should include both in their share registers, even if they plan to use e-mail exclusively for shareholder communications.
Projected Capital Structure
For the purposes of this section, the term 'capital structure' is simplified to include only shares.
The legal requirements of a share register are to show all of current shareholders of the company.
To build a meaningful financial projection for the company, and to predict the future value of the shares of the company, you also need a projected capital structure (i.e. projected share register). This projection shows the effects of several financings on the number of shares outstanding and percentage ownership of the founders and investors.
Its important for company founders and investors to agree on the projected capital strucutre as a confirmation that the entrepreneurs and investors are effectively communicating about the current financing and future direction of the company. It is surprising how often the investors and founders have not in actual fact communicated clearly.
It is also much healthier psychologically for founders to think about the percentage of the company they will own after the third or fourth financing, rather than the percentage they own at startup. Most of the time, founders will fix the percentage of the company they owned at the outset in their mind without factoring in the inevitable dilution from future rounds of financing. This often leads to a negative psychological reaction to issuing new shares to raise equity financing.
If you have not done this before, the easiest way to understand it is to spend some time working with the example share register at the link below.
Investor Perception
This is one of the first impressions an investor receives when starting due diligence on a company. If the share register and projected capital structure are complete, logically laid out and effectively formatted, prospective investors will feel like the company is organized, compliant and generally well managed.
Example Share Register
An example share register and projected capital structure in Excel, which you are encouraged to use for your company, is available at this link. (If you click this link, the Excel file will probably open in your browser. You can also right click on the link and download the file to your computer.)
This sample combines both the legal requirements of the current share structure and the pages to project the future capital structure after a few financings. Its most efficient to keep these in one file.
