Equity

Cap Table: A capitalization table (otherwise known as a “cap table”) is a table showing the securities and their capitalization ratios.

Common Stock: Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing board of directors and voting on corporate policy. Common stockholders are on the bottom of the ownership structure.

Convertible Preferred Stock: Most convertible preferred stock is exchanged at the request of the shareholder, but sometimes there is a provision that allows the company (or issuer) to force the conversion. The value of convertible common stock is ultimately based on the performance of the common stock.

Cumulative Stock: Cumulative Stock (usually Cumulative Preferred Stock) is stock that must be paid all past unpaid dividends first, before any dividends can be made to other stockholders such as Common Stockholders).

Dividend Recapitalization: A dividend recapitalization (or “dividend recap”) typically involves the company’s borrowing money in order to make a large cash distribution to its shareholders. After the dividend re-cap, the company’s capital structure has changed significantly (for example, it may have had no debt prior and now is debt-laden). Investors benefit by receiving a large cash distribution from the company and “taking money off the table“.

Equity Carve-Out: An Equity Carve-Out is a sale of a portion of equity in a subsidiary to the public via a public offering. The private parent company retains the majority stake in the now public subsidiary, usually greater than 80%. With ownership of over 80%, the private parent company still retains the right to undertake spin-offs and split-offs on a tax-free basis.

Equity Financing: The money acquired from the business owners themselves or from other investors.

Equity Multiples: A ratio used to determine the value of a company’s equity. An example of an equity multiple is price to earnings.

Fully-Diluted Basis: Fully-diluted basis is the total number of shares that would be outstanding if all possible sources of conversion, such as convertible bonds and stock options, were exercised. Companies often release specific financial figures in terms of fully diluted shares outstanding (such as the company’s profits reported on a fully diluted per share basis) to allow investors the ability to properly assess the company’s financial situation.

Issued Shares: Issued shares is the number of authorized shares that is sold to and held by the shareholders of a company, regardless of whether they are insiders, institutional investors or the general public.

Participating Dividends: Participating dividends is a type of preferred stock that gives the holder the right to receive dividends (usually specified as a rate and/or based on predetermined conditions). Usually, the additional dividend is structured to be paid only if the dividends to common shareholders exceeds a specified per-share amount.

Preferred Stock: Preferred stock is a specific class of stock that has a higher claim on assets and earnings than common stock. Preferred shares, depending on the issuing company, have characteristics akin to both debt and equity, having both potential appreciation and fixed payments. Dividends on preferred stock are paid before the dividends on common stock.

Restricted Stock :Purchase Agreement A restricted stock purchase agreement is a legal document made between the shareholder and the startup company that details the transfer and purchase of stock by the shareholder, its price, amount, and restrictions placed on the sale of the stock through a vesting schedule.

Tranche: Tranche is a portion of a security offered in a transaction that has distinct risk specifications and maturity dates than the other layers of the multiple-class security.