Meaning
Allocation of equity percentages among the founders and early employees defines the list of holders of a venture. Every ownership allocation is based on a mix of capital investment and future labor. It remains the legal standard for payouts and voting power until a new issuance of shares occurs.
Share Issuance
Certificates or digital records provide the physical proof of the percentage held by each person. Although the ownership allocation is decided in the early days, it determines the financial destiny of every participant. It is the most sensitive document in the history of the company.
Vesting Schedule
Time based restrictions prevent founders from taking their full share before they have contributed their expected value. An ownership allocation often includes a plan where shares are earned over several years. This protects the organization from people who might leave shortly after founding.
Cap Table
Records of all holders are maintained in a central file that tracks the dilution from new rounds of funding. The ownership allocation must be updated every time a new investor joins or an employee exits. If this record is inaccurate, the cost of a future sale or merger will be much higher.
The distribution is the map of the power.
