Meaning
Financial obligations resulting from unrecorded equity promises or clerical errors in ownership ledgers represent a specific risk during corporate transactions. These unrecorded debts create cap table liability that must be settled before an exit.
Ownership Evidence
Equity ledgers must provide a complete history of every share issued. Discrepancies in the record create cap table liability that a buyer will deduct from the purchase price. Every grant requires proof.
Signed agreements and board minutes provide the necessary documentation to confirm the total number of shares outstanding. Oral agreements or emails suggest a future claim that creates uncertainty for the final distribution of funds. Accurate records ensure that the ledger reflects the actual state of ownership at every point in time.
Verification Protocol
Auditing the record requires a line by line comparison of the ledger against every signed security instrument. This process identifies gaps where a grant of shares was approved but never documented with a formal certificate.
Financial Settlement
Payment of these claims occurs through an adjustment to the merger consideration or a direct settlement before closing. Unresolved claims remain as a threat to the indemnity escrow. Settlement of these claims reduces the total cash received by common shareholders.