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Does an LLC Need a Cap Table?

Limited liability companies (LLCs) are unique business entities that protect owners’ personal assets in the event that the business faces legal issues. Having a solid cap table management software helps keep LLCs in good financial order, regardless of the size to which it grows. LLCs may begin with one or two employees and grow into corporate-sized companies while still maintaining the protections inherent in the LLC model. 

An LLC, according to Legal Zoom, is “governed by a written operating agreement that describes the way the business will be run, the roles of the members, and the way profits will be shared. But LLCs are very flexible in the specifics of the agreement. In contrast, corporations have a rigid structure of officers, directors, and shareholders.”

Given the more loosely defined structure of the LLC, some people assume they don’t need a cap table in place. On the contrary, the looser structure means the LLC benefits to a greater degree. 

Why is it important that my LLC has a Cap Table?

Starting with a clean, functional LLC cap table ensures your business can scale effortlessly and make reporting to current or future investors easier in the long run. 

As in any business, the ability to reach out to and offer transparent financials to potential investors helps you grow your company. In this regard, an LLC cap table is no different than one used by a corporation. 

An LLC cap table allows the company to easily share past and present financials with investors. Often, the cap table answers questions that investors have before they even need to address them with company owners.

LLC cap tables are also helpful when it comes to hiring new employees. A clean cap table allows employers to be transparent with new hires from day one. As our culture shifts to an employee-centered approach to hiring, a little transparency can go a long way in hiring and retaining the best talent, and maintaining buy-in from current employees.

How do LLCs Use Cap Tables?

Cap tables are essential for every business. The LLC cap table, however, serves two main purposes that are LLC-specific. These include fundraising and recruitment. 

Cap tables aid in strategic fundraising initiatives by noting ownership stakes in the company. Investors want access to the LLC’s past funding track record, just as much as they would a corporation. They’re also interested in how their additional funds would affect the company’s ownership structure. Furthermore, a cap table allows LLC investors to get an inside look at their potential liquidity rank should the business fall into bankruptcy. 

When it comes to recruitment, cap tables serve a fairly straightforward function – recruiting the best talent in the industry that the LLC serves. Transparency in company shareholding often motivates employees to invest their time and money into their company with a greater sense of purpose and ownership. 

What should a Cap Table for an LLC include?

An LLC cap table should reflect shareholder information in a simple, clear format. Some of the basic information your cap table should include:

  • Total number of shares
  • Basic details of current shareholders
  • The total worth of each shareholder

 

The above information alone would be an excellent starting point for any LLC cap table. Such information is easy to maintain and update along with the growth of your company. 

As your company grows and expands and, hopefully, you begin to attract more stakeholders – including investors and employees – you will want to automate your cap table. Astrella has a proven track record of growing cap tables at the rate your business is growing. 

Some of the comprehensive shareholder details you’ll want to add to your LLC cap table as your company grows includes the following:

  • Pre-money valuation 
  • Post-money valuation
  • The initial price per share
  • Price per share post-money
  • Percentage ownership of investors post-money

 

As your information becomes more extensive, you may be wondering who should manage your cap table for your LLC. 

Who should manage my Cap Table?

The management of your LLC cap table is usually assigned to executives in your company, but in some organizations a Controller or Stock Plan Administrator is responsible. Once management is in place, there are a limited amount of people who should be given access:

  • Entrepreneurs
  • Venture capitalists
  • Investment analysts
  • Employee Shareholders

 

Regardless of the entities given access to your cap table, it should always be maintained by an executive in your company. 

Create a Cap Table for your LLC with Astrella

The ultimate objective for all business owners is to grow. This is no different for LLC owners. In order to grow and expand your business, you need to have a cap table that can grow with you. Given the information above, it becomes clear that including the right information in your LLC cap table, as well as continuing to manage and maintain it properly, makes the cap table a finely honed tool you can share with both investors and employees. 

Astrella helps business owners create cap tables from the ground up. We guide you through the process by making it easy for you to choose how your cap table looks, what it includes, and how our software can help ensure you’re making the best decisions throughout the process. 

Don’t just take our word for it. Put us to the test! We offer a free demonstration of our services through our website so you can make the most educated decisions about your LLC cap table. 

Let Astrella help you set up your LLC’s cap table so you can confidently grow your business!

About the Author

Carine M. Schneider, FGE (Fellow of Global Equity), is an experienced and well-connected leader in the private market and global compensation industry with extensive experience working in consulting, technology, and financial services. She was named one of the 100 Influential Women in Silicon Valley by the Silicon Valley Business Journal and one of 17 “Women to Watch” in 2017 by Brown Brothers Harriman Center on Women and Wealth. Follow Carine on Twitter and LinkedIn.