Practical Guidance for Advanced Ownership

Introduction

The Practical Guidance for Advanced Ownership guide is designed to assist you with making the best possible use of Corporate Focus and to thoroughly understand what we call “the life of ownership.” The topics covered present not only guidance, but also advanced tips and tricks that when used properly assure the best use of the program and, most importantly, that your data is correct.

You will learn about setting up Advanced Ownership Types. This section is aimed at those of you who track not only Common Stock, but also Convertible Preferred stock and/or Option plans.

You’ll learn how to create Ownership Ledger Records for stock, convertible, and option grants. We’ll show you how Corporate Focus can automatically cancel unvested and outstanding options.

If you use User Defined Vesting Schedules, we explain the importance of six decimal precision. It is always best practice to use 6 decimals for vesting percentages so that when the vesting schedule is generated, values can be evenly divided out by 100. This setting provides the best balance of precision for numbers in the shares and total per period columns, as well as the total shares at the end of vesting.

We’ll show you how to specify the Default Rounding that is to be used for vesting schedules, as well as how to change the default rounding selection on a schedule-by-schedule basis.

It is particularly important to understand how Transaction Dates are used, and when prompted how to enter a valid Transaction Date. The Transaction Date is used to keep a valid historical record of each and every change made to ownership records in Corporate Focus.

The Transaction Date influences the Corporate Focus Use Date feature and accurate historical reporting. Having the correct transaction date in place for each historical record assures accurate historical and future reporting. If you have mistakenly entered your transaction information out of order or you have changed a critical date in an ownership record, you’ll need to correct the record history.

How to Set Up Ownership

This section provides an overview of setting up ownership of not only Stock, but also Convertible Preferred stock, and Option plans. By following these guidelines you will have a solid foundation in place within Corporate Focus for tracking ownership information. By working through the examples in this section you will understand how the ownership logic works and can be assured that your data is correct from day one.

Our examples are based on entering information for a company that already has ownership history. We will take you through setting up Common stock with 10,000,000 shares, a Preferred class of 4,000,000 shares (with 1,000,000 shares designated as Series A Preferred), and an Option plan of 2,000,000 shares. The fields we fill in are not necessarily required fields, but are the minimum fields needed to provide a solid foundation for ownership tracking.

Note: Complete, detailed information of ownership tracking is found in the Corporate Focus Help file.

How to get here: Ownership > Types > Click Add (Add button)

Add Ownership Type screen
Figure 1. The Enter Basic Data screen appears every time you create (or edit) an ownership type.

Note: The [Enter] Basic Data screen looks the same regardless of the ownership type being created. However, the Quick Links that appear on the left vary depending on the value chosen for the Category field.

Setting up Common Stock

This procedure describes how to add an ownership type record for an ownership type categorized as Stock in Corporate Focus. This includes types such as Common Stock, LLC Membership Units, and Partnership Units. Your Common Stock should always be the first ownership type created.

Here we assume that the Articles of Incorporation authorizing 10,000,000 shares of stock were filed on 3/22/2011.

arrow For example: You are adding a new ownership type called Common Stock.

In order to complete this entry in Corporate Focus, follow these steps:

  1. Create the new Ownership Type. On the Ownership menu select Types and then click the Add button (Add button).
  2. Enter the following fields on the Basic Data screen:
    • Type – the classification of this ownership type, in this case Common Stock. Start typing Common Stock into this field; a list will auto-populate with matches. Note that Common Stock is a default ownership type and should not be entered by clicking ‘Add Add button‘.
    • Authorized – the total number of shares authorized
    • Par Value – dollar amount assigned to a security when representing the value contributed for each share
    • Category – in this case you choose Stock
    • Date Created – the date that the Articles of Incorporation were filed
      Add Ownership Type basic data
      Figure 2. The Basic Data screen with our sample Common Stock data entered 
      Important! If you do not know the date created, upon saving the record you are prompted to enter a Transaction Date. The Transaction Date is a crucial component to accurate historical reporting.
  3. Click the Enter Financial Info. link and enter the following fields:
    • Use Fair Market Value table on Security Issuance – click to place a check mark next to this field. When you later add ownership records for this ownership type, Corporate Focus automatically calculates the Fair Market Value and Fair Market Value Per Share based on the FMV Value table.
    • Fair Market Value table – click Add and in the Add Fair Market Value pop-up window, enter the Date (same as date created entered in step 2), the Value as it was on the date of creation, and then click Save. You can then click Copy >> to add the FMV to the Exercise Price table.
      Add Ownership Type financial data
      Figure 3. The Financial screen with our sample data entered
  4. Click the Enter Legends link. If you print legends on your stock certificates, enter the legend that you want to appear as the default legend on every Common Stock certificate. Legends specific to a particular stock certificate can be entered on an individual ownership level.
  5. Click the Enter Certificate Info tab. This is where you specify how to print the stock certificates.
  6. Save the new Common Stock ownership type. As long as you entered the Date Created you can save the new ownership type without getting the Enter Transaction Date pop-up.

For complete instruction on creating an ownership type of Stock, see the Corporate Focus Help topic Adding an ownership type record for the Stock category.

Setting Up Convertible Preferred Stock

This procedure describes how to add an ownership type record for an ownership type categorized as Convertible in Corporate Focus. This includes types such as Class A Convertible Preferred Stock.

We assume in our example that on 3/22/2011, the Articles of Incorporation for 4,000,000 shares of Convertible Preferred stock were filed. Immediately available are 1,000,000 shares of Series A Preferred Stock with a 2:1 conversion ratio. The remaining 3,000,000 shares are left for future classification. You now use the Capital Authorized screen to enter these shares. Later, you use this screen to track the total authorized for each class of ownership.

There are two steps for adding the Convertible Preferred class.

Here we assume that the Articles of Incorporation authorizing 10,000,000 shares of stock were filed on 3/22/2011.

arrow Example 1: You must first add a Capital Type for the issued shares for Preferred stock.

In order to complete this entry in Corporate Focus, follow these steps:

  1. If you are not already on the Types screen, on the Ownership menu select Types.
  2. Click the Capital Authorized button (Capital Authorized button) on the lower button bar.
  3. On the Capital Types page, click Add (Add button).
  4. In the Add Capital Type pop-up window, select the Type as Preferred Stock, enter the number Authorized, and the Date as the actual date of the authorization.
    Add Capital Type
    Figure 4. You need to set up a Capital Type prior to creating a Convertible Preferred class
  5. Click Save to save the Preferred Stock capital
    type. For complete instruction on creating a Capital Type, see the Corporate Focus Help topic Adding a new capital type.

arrow Example 2: You can now add your Series A Preferred Stock.

In order to complete this entry in Corporate Focus, follow these steps:

  1. Create the new Ownership Type. On the Ownership menu select Types and then click the Add button (Add button).
  2. Enter the following fields on the Basic Datatab:
    • Type – the classification of this ownership type, in this case Series A Preferred Stock. Start typing
      Series A Preferred Stock into this field; a list will auto-populate with matches. Note that Series A Preferred Stock is a default ownership type and should not be entered by clicking ‘Add Add button‘.
    • Authorized – the total number of shares authorized
    • Capital Type – set this to Preferred Stock (set up in example 1 above)
    • Category – in this case you choose Convertible
    • Date Created – the date that the preferred shares were initially authorized
      Add Series A Preferred Stock
      Figure 5. The Basic Data screen with our sample Series A Preferred data entered
  3. Click the Enter Convertible Info link and enter the following fields:
    • Converts Into – select the ownership type into which the ownership type you are adding will convert into upon conversion. Choose Common Stock.
    • Update Factor – tells Corporate Focus how to calculate the number of shares when the stock is converted. For example, if the ratio is 2:1, enter 2. If the ratio is 3:2 (reads as 3 for 2), enter 1.5. Click the calculator (Calculator) to calculate the update factor based on the ratio. For our example, enter 2.
    • Default Rounding – sets the default options for rounding when updating common equivalents. Choose Normal, Round Up, Round Down, or Show All (no rounding – entire number is utilized to the eighth decimal place).
    • On Conversion – reduces the number of reserved shares when ownership records of this type are converted. Select this check box.
    • Starting Reserve – Corporate Focus will automatically calculate the starting reserve amount based on the Converts Into and Update Factor and creates the reserve in the ownership type the preferred shares will convert to.  Click Save.Add Convertible Info
      Figure 6.Convertible Information screen with our sample data entered
  4. Click the Enter Legends link. If you print certificates on your stock records, enter the legend that you want to appear as the default legend on every Series A Preferred Stock certificate. Legends specific to a particular stock certificate can be entered on an individual ownership level.
  5. Click the Enter Certificate Info. tab. This is where you specify how to print the stock certificates.
  6. Click Save to save the Series A Preferred Stock ownership type record.

Now, on the ownership type screen, select Common Stock and then click the view button (View button). You will now see displayed the reserved shares for the Series A Preferred Stock, in our example 2,000,000 shares.

Basic Data and Reserved tabs
Figure 7. The reserved shares now appear in the Common Stock record’s Reserved screen

For complete instruction on creating an ownership type categorized as Convertible, see the Corporate Focus Help topic Adding an ownership type record for the Convertible category.

Setting up an Option Plan

This procedure describes how to add an ownership type record for an ownership type categorized as Option in Corporate Focus.

Basics of setting up an option plan

We continue now with our ownership setup example. Let’s say that on 3/22/2011 the Board authorized 2,000,000 stock options. In this option plan, the options will convert to common stock. The vesting schedule is designated as a “Cliff” with a four year vesting period that is broken down into 25% after 12 months, then monthly vesting for the remaining 36 months.

Important!: If you plan to use a vesting schedule other than a default vesting schedule provided by Corporate Focus, first see the section Setting Up Vesting Schedules. You need to set up a custom vesting schedule before it can be assigned to an option plan.

Setup default vesting schedules
Figure 8. The default vesting schedules provided by Corporate Focus

arrow For example: You are adding a new ownership type called 2011 Option Plan.

In order to complete this entry in Corporate Focus, follow these steps:

  1. Create the new Ownership Type. On the Ownership menu select Types and then click the Add button (Add button).
  2. Enter the following fields on the Basic Data tab:
    • Type – the classification of this ownership type, in this case 2011 Option Plan
    • Authorized – the total number of shares authorized
    • Category – in this case you choose Option
    • Date Created – the date that this ownership type was authorized by the board
    • Date of Termination – the date that the option plan expires
      Basic Data tab
      Figure 9.The Basic Data fields that should always be filled in when creating an Option Plan
  3. Click the Enter Convertible Infolink and enter the following fields:
    • Converts Into – select the ownership type that the option will convert into upon exercise, typically Common Stock
    • On Option Exercise – reduces the number of reserved shares when ownership records of this type are exercised. Select this check box.
    • Starting Reserve – when On Option Exercise is selected, Corporate Focus will automatically calculate the starting reserve amount based on the Converts Into and creates the reserve in the ownership type the options will convert to. Click Save.
      Convertible Information
      Figure 10.The reserved shares for this option plan will now appear in the common stock record
  4. Click the Enter Option Info. link and enter the following fields:
    • Grants Expire – specify expiration information in number of months and days for this option plan, typically 10 years (120 months)
    • Permitted Types – select Incentive (ISO) and Non-Qualified (NQO)
    • Early Exercise Permitted – select to allow early exercise for ownership records of this type. This is a global setting for this option plan. You can then mark individual option grants as being early exercisable or not.
    • Events – specify how to process outstanding and unvested options.
      Accept the three default values
      . By leaving the defaults selected, Corporate Focus will automatically cancel options when (a) options expire, (b) participants terminate, and/or (c) when a participant’s post-termination exercise period ends. See the section
      How to cancel options using participant terminations
      . If you do not want Corporate Focus to automatically cancel your options, then uncheck these check
      boxes. Regardless of the method, you can always use the Changes routine to cancel unvested or outstanding options. See the section How to cancel options using the Changes screen.
    • Standard exercise period ends – you can cancel outstanding options after a terminated participant’s exercise period ends. Enter the number of months and days after the exercise period that the outstanding options will be cancelled.
      Option Information
      Figure 11.Specify details such as permitted types, parameters, and event options
  5. Click the Enter Vesting Schedules link. Select the vesting schedules you want to allow for this option plan and then click Attach.Enter Vesting Schedules
    Figure 12. Select a vesting schedule and then click Attach to associate that schedule with the option plan
  6. Click the Enter Financial Info. tab. Accept the two default selections Use Fair Market Value table from Conversion Type, and Use Exercise Price table from Conversion Type. Also select the check boxes for Use Fair Market Value table on Option Grant and Exercise, and Use Exercise Price table on Option Grant. This is important so that the financial values of each option record are tied back to the FMV of the common stock
    Enter Financial Info tab
    Figure 13. Make these selections so that the financial values are tracked in the common stock
  7. Click Save to save the 2011 Option Plan ownership type record.

For complete instruction on creating an ownership type of Option, see the Corporate Focus Help topic Adding an ownership type record for the Option category.

Summary: It is very important to have a solid foundation in place within Corporate Focus for tracking ownership information. Having worked through the examples in this section you should have a basic understanding of how the ownership logic works.

We’ve worked through setting up Common stock with 10,000,000 shares, a Preferred class of 4,000,000 shares (with 1,000,000 shares designated as Series A Preferred), and an Option plan of 2,000,000 shares. The fields we filled in were not necessarily required fields, but were the minimum fields needed to provide a solid foundation for ownership tracking.

In this screenshot of our example’s Ownership Summary, we can see clearly the basic information for our three ownership types:

  • Common Stock record of 10,000,000 authorized shares, of which 4,000,000 shares have been reserved
  • Series A Preferred Stock record showing 1,000,000 shares available. Note that the total reserved in Common Stock is 4,000,000 shares (2,000,000 shares for the Option Plan, and 2,000,000 shares for the Preferred Stock). This is due to the 2:1 conversion ratio we set up in this ownership type.
  • 2011 Option Plan showing the 2,000,000 shares authorizedOwnership Summary
    Figure 14. Select Ownership > Summary to view a summary of all your ownership typesNote: To see the number of options outstanding, hold your mouse (cursor) over the N/A in the Outstanding column.

Setting Up Vesting Schedules

This procedure describes how to add a new vesting schedule using the Add Vesting Schedule screen. You create a new vesting schedule by selecting the existing vesting schedule that most closely matches the vesting schedule you want to create and copying it.

Important!: If you plan to use a vesting schedule other than a default vesting schedule provided by Corporate Focus, first work through this section. You need to set up a custom vesting schedule before it can be assigned to an option plan.

How to get here: Click Setup and choose Ownership > Default Vesting Schedules

Vesting Schedules setup table
Figure 15. Corporate Focus set up tables showing the default vesting schedules

For our example we will create a “Cliff” type vesting schedule based on the Corporate Focus default vesting schedule 25% per year for 4 years.

arrow For example: We will modify an existing vesting schedule to create a four year “Cliff” that vests 25% after one year, then monthly for 36 months thereafter.

In order to complete this entry in Corporate Focus, follow these steps:

  1. Select the radio button to the left of the vesting schedule that most closely resembles the schedule you want to create. For our example, we’ll choose the 25% per year for 4 years schedule.
  2. Click the Add button (Add button). The Vesting Schedule pop-up window appears. The rows contain the same data as the copied vesting schedule.Vesting Schedule popup window
    Figure 16. You can base a new vesting schedule by modifying an existing schedule
  3. In the Vesting Name field, enter a name for the new schedule. For our example, we will enter Cliff 48 months 25% after 1 year, monthly thereafter.
  4. Add, edit, and delete rows as needed to set up your new vesting schedule. The idea here is to
    always arrive at 100 in the Percent column
    . Important!: It is best practice to use 6 decimals for percentages so that when the vesting schedule is generated, values can be evenly divided out by 100 thereby utilizing the maximum 8 decimals allowed by Corporate Focus. If you do not allow for the extra two decimal places in the generated schedule, you may not always arrive at 100% vesting for the ownership record and at that point will have to manually edit the schedule. If you use fewer than 6 decimals, your number will still calculate to 100%, but overall your data is not as precise. For more information see the section Using 6-decimal Precision for User Defined Vesting Schedules.

    • In our example, we will now change Occurrence to 1, and then click Update. This row now covers the first year of the Cliff. Twenty-five percent will vest after one year. Note that the Percent has been reduced to 25 due to the change in the Occurrence.
    • Now we will add a row that covers a 35 month period after the 12 months
      already established. Because we are using 6-decimal Precision, we will not
      arrive at 100 percent if we enter 36 months for the Occurrence. Click Add Row, enter Months as 1, Days as 0, Percent as 2.083333 (displayed in the Difference field), Occurrence as 35, and then click Add. This amount will vest monthly for 35 months. The Percent column now displays 97.916655. Next we will enter another row to cover the remainder.
    • The final row in our example is an adjustment row that covers the remainder bringing the Percent Total to 100.Click Add Row, enter Months as 1, Days as 0, Percent as 2.083345 (displayed in the Difference field), Occurrence as 1, and then click Add. The Percent now displays as 100.
      Setup Cliff vesting schedule
      Figure 17. You should always arrive at 100%vesting when setting up a new vesting schedule
  5. Click Save to save the new vesting schedule. This schedule will now appear in the Setup > Ownership > Default Vesting Schedules table. Note that this schedule is not marked as a default. However, the schedule will appear in the list of available vesting schedules for Option plans.
  6. Select the Default Rounding method that is to be used for this schedule (the program uses Round Down by default). The value selected here will appear on the ownership type screen but can be changed there on a schedule-by-schedule basis. This value has no effect on setting up the default vesting schedule parameters; it is used only when an actual vesting schedule is generated.

For complete instruction on setting up vesting schedules, see the Corporate Focus Help topic Add Vesting Schedule.

Using 6-decimal Precision for User Defined Vesting Schedules

It is always best practice to use 6 decimals for vesting percentages so that when the vesting schedule is generated, the vesting shares for each vesting period are most accurate. Using 6 decimals in your calculations allows you to best utilize the maximum 8 decimals for each vesting period.

If you do not allow for the extra two decimal places in a generated vesting schedule, that is you have used 7 or 8 decimals in your vesting schedule setup, you may not always arrive at a 100% vesting total for an ownership record and at that point will have to manually edit the vesting schedule. If you use fewer than 6 decimals, your number will calculate to 100%, but overall your data will not be as precise. For more information, see step 4 in the section Setting Up Vesting Schedules.

We will now look at examples of how the vesting numbers vary when based on 5-decimal, 6-decimal, and 7-decimal Precision. Keep in mind that the more decimals you use in the vesting schedule setup, the more precise your generated numbers will be for that vesting period, but if you use 7- or 8-decimals in the setup, your total can end up less than 100% due to rounding (not having the two decimal places available for the calculations).

Our examples are based on 112 options granted on 3/22/2011, vesting on our 48-Month Cliff of 25% for the first year and monthly vesting thereafter.

arrow Example 1: This Cliff has been set up using 5-decimal precision.

5-decimal precision
Figure 18. The vesting schedule setup using 5-decimal Precision (top) and the generated results (below)

We can see that using 5-decimal Precision does produce a 100% result for shares and total. By using 5 or fewer decimals, you will never have a rounding issue. However, your actual amounts per vesting period will not be as precise as higher decimal calculations.

arrow Example 2: This Cliff has been set up using 6-decimal Precision.

6-decimal precision
Figure 19. The vesting schedule setup using 6-decimal Precision (top) and the generated results (below)

Here we see 6-decimal Precision based on the Cliff we set up. Shares and total will always equal 100% as long as the vesting schedule itself calculates to 100%.

By using 6 decimals in the vesting schedule setup, you obtain the best balance of precision for numbers in the shares and total per period, as well as the total shares at the end of vesting.

arrow Example 3: This Cliff has been set up using 7-decimal Precision.

7-decimal precision
Figure 20. The vesting schedule setup using 7-decimal Precision (top) and the generated results (below)

With 7- or 8-decimal precision, you do obtain the most precise numbers for shares and running total in the corresponding vesting period. However, because you are not allowing for two decimals in the actual calculation of the vesting (division by 100), your totals will not always equal 100%. In this example, 112 shares vests to 111.99999993.

Summary: Corporate Focus allows you to specify the number of decimal places used in the calculations of custom vesting schedules. It is always best practice to use 6 decimals for vesting percentages so that when the schedule is generated, values can be evenly divided out by 100, thereby utilizing the maximum 8 decimals allowed by the system.

  • By using 5 or fewer decimals, you will always vest to 100%. However, your actual amounts per vesting period will not be as precise as higher decimal calculations.
  • By using 6 decimals, you obtain the best balance of precision for numbers in the shares and total per period, as well as the total shares at the end of vesting.
  • By using 7 or 8 decimals, you do obtain more precise numbers for shares and running total in the corresponding vesting period. However, because you are not allowing for two decimals in the actual calculation of the vesting (division by 100), your totals will not always equal 100%.

Setting Up the Ownership Ledger

After you have set up your ownership types and entered any custom vesting schedules, you can begin using the Ownership Ledger screen to view, issue, and update ownership records for a company’s ownership types, and to perform ownership changes.

We now continue with examples based on the ownership types we created earlier. In the examples that follow we will issue 500 shares of Common Stock, 250 shares Series A Preferred Stock, and 125 options. Remember that the fields we fill in throughout this section are not necessarily required fields, but are the minimum fields needed to provide a solid foundation for ownership tracking.

How to get here: Ownership > Ledger

Ownership Ledger
Figure 21. The Ownership Ledger screen displaying the three ledger records we will create in our examples

Adding a Stock ledger record

This procedure describes how to add an ownership record for an ownership type categorized as Stock in Corporate Focus.

arrow For example: You need to add an ownership ledger record for common stock.

In order to complete this entry in Corporate Focus, follow these steps:

  1. Create the new ledger record. On the Ownership menu select Ledger and then click the Add button (Add button).
  2. Enter the following fields on the Basic Data screen:
    • Type – the classification of this ownership record, in this case Common Stock
    • Name – the name of the owner for this record. Note that if a participant record exists for the name you enter, that name appears as the default in the Related Participant field.
    • Certificate Number – the default number is one greater than the last number assigned to an ownership record of this type. You may enter your own certificate number as long as it is not already being used by the system.
    • Number – the number of shares issued for this record, in our example, 500
    • Related Participant – the related participant for whom the options are granted. If a participant record exists for the selected owner, then that participant records appears as the default in the Related Participant field. If a participant record does not exist for the owner, click the
      Add button (Add button) to use the Quick Add screen to add a new participant record for the owner.
      Basic Data tab
      Figure 22. There are five fields on the Basic Data screen that you should fill in
  3. Click the Enter Details link and enter the following fields:
    • Date of Issuance – click the pop-up calendar and select the date of issuance, in our example 3/22/2011
    • Outstanding – leave this field selected. When an ownership record is outstanding, the number available for the ownership type is reduced by the number issued for the ownership record. When the Outstanding check box is not selected, the shares are considered cancelled.
      Enter Details tab
      Figure 23. It is best practice to always enter the Date of Issuance and leave Outstanding selected
    • The Use What Number (Common Equivalents) and Calculate Common Equivalents fields are selected by default. Keep those values selected.
  4. Click the Enter Legal Information link. Choose the Owner Type
    from the corresponding drop-down list. You use owner types to group names
    based on investors, participants, founders, management, etc. This is a key
    feature in the Corporate Focus capitalization tables. Note: This field is filled in by default if the name being entered is already being used as an officer, director, or participant. For complete information on setting up Owner Types, see the Corporate Focus Help topic Add Owner Type.
    Enter Legal Information tab
    Figure 24. Here you specify the Owner Type, which is a key feature in the Corporate Focus capitalization tables
  5. Click the Enter Amount Paid link and enter the Fair Market Value and
    Fair Market Value Per Share
    . Depending on how the financial information is configured for the ownership type, default values may be calculated for both these fields. Regardless of whether or not default values are calculated, Corporate Focus can automatically calculate the value of one of these fields based on the value that you enter into the other
    field. After you enter one of the values, click the calculator (Calculator) next to the other field; Corporate Focus calculates the value for that field.
    Amount Paid tab
    Figure 25. Default values can be calculated for FMV or FMV Per Share
  6. Click the Enter Legends link. The default text for the legend comes from the ownership type record, but can be edited here. The legend prints on the back of the stock certificate.
  7. Click Save to save the ownership ledger record.

For complete instruction on creating an ownership record for Stock, see the Corporate Focus Help topic Adding an ownership record for the Stock or Convertible category.

Adding a Convertible ledger record

This procedure describes how to add an ownership record for an ownership type categorized as Convertible in Corporate Focus. An important aspect of a convertible type record is properly setting up the common equivalents.

arrow For example: You need to add an ownership ledger record for Series A Preferred Stock.

In order to complete this entry in Corporate Focus, follow these steps:

  1. Create the new ledger record. On the Ownership menu select Ledger and then click the Add button (Add button).
  2. Enter the following fields on the Basic Data screen:
    • Type – the classification of this ownership record, in this case Series A Preferred Stock
    • Name – the name of the owner for this record. Note that if a participant record exists for the name you enter, that name appears as the default in the Related Participant field. In our example, Kimberly Katz is the related participant, designated as the President.
    • Certificate Number – the default number is one greater than the last number assigned to an ownership record of this type. You may enter your own certificate number as long as it is not already being used by the system.
    • Number – the number of shares issued for this record, in our example, 250
    • Common Equivalents – Corporate Focus automatically calculates common equivalents as Number of Shares * Update Factor for convertible stock as it is being added as long as the Calculate Common Equivalents feature in the type setup is selected (default setting).If you are not calculating common equivalents automatically, enter the number of common equivalents issued or you can click the Calculator (Calculator) to update the value based on Number of Shares * Update Factor.
      Add Convertible Info
      Figure 26. Enter the number of Common Equivalents if you are not calculating automatically
  3. Click the Enter Details link and enter the following fields:
    • Date of Issuance – click the pop-up calendar and select the date of issuance, in our example 3/22/2011
    • Outstanding – leave this field selected. When an ownership record is outstanding, the number available for the ownership type is reduced by the number issued for the ownership record. When the Outstanding check box is not selected, the shares are considered cancelled.
      Details tab
      Figure 27. It is best practice to always enter the Date of Issuance and leave Outstanding selected

      Important!
      If you do not know the date of issuance, upon saving the record you are prompted to enter a Transaction Date. The Transaction Date is a crucial component to accurate historical reporting.
  4. Click the Enter Legal Information link. Choose the Owner Type from the corresponding drop-down list. You use owner types to group names based on investors, participants, founders, management, etc. This is a key feature in the Corporate Focus
    Capitalization Table – by Name
    . Note: This field is filled in by default if the name being entered is already being used as an officer, director, or participant. For complete information on setting up Owner Types, see the Corporate Focus Help topic Add Owner Type.
    Add Legal Information
    Figure 28. Here you specify the Owner Type, which is a key feature in the Corporate Focus Capitalization Table – by Name
  5. Click the Enter Legends link. The default text for the legend comes from the ownership type record, but can be edited here. The legend prints on the back of the stock certificate.
  6. Click Save to save the ownership ledger record.

Adding an Option grant ledger record

This procedure describes how to add an option grant for an ownership type categorized as Option in Corporate Focus.

arrow For example: You need to create a new Option grant.

In order to complete this entry in Corporate Focus, follow these steps:

  1. Create the new ledger record. On the Ownership menu select Ledger and then click the Add button (Add button).
  2. Enter the following fields on the Basic Data screen:
    • Type – classification of this record, in our example, 2011 Option Plan
    • Name – the name of the owner for this record. Note that if a participant record exists for the name you enter, that name appears as the default in the Related Participant field. If a participant record does not exist for the owner, click the Add link to use the Quick Add screen to add a new participant record for the owner.
      In our example, Robert Houser is the related participant, designated as the
      CEO.
      Note: You must provide a Related Participant if you want Corporate Focus to automatically cancel unvested options when you terminate a participant. For more information, see the section How to cancel options using participant terminations.
    • Option Number – the default number is one greater than the last number assigned to an ownership record of this type. You may enter your own certificate number as long as it is not already being used by the system.
    • Number – the number of options issued for this record, in our example, 125 Basic Data tab
      Figure 29. These are the five Basic Data fields you should always enter for an option grant ledger record
  3. Click the Enter Details link and enter the following fields:
    • Date of Grant – click the pop-up calendar and select the date of grant, in our example 3/22/2011
    • Date of Expiration – Corporate Focus automatically calculates this date based on the date of grant, and the grant expiration information entered in the Option Info section of the ownership type record.
    • Exercise Price and Date of Grant FMV – these fields populate automatically; the numbers are tied to the Common Stock ownership type record. For more information see step 6 in the section Setting up an Option Plan.
    • Grant Type – for this example select Incentive (ISO). The types listed will vary depending on which types were enabled in the Enter Option Info section of the ownership type record.Details tab
      Figure 30. These are the five Details fields you should always enter for an option grant ledger record
  4. Click the Vesting Schedule link and enter the following fields:
    • Vesting Type – available types come from the Vesting Schedules section of the ownership type record. For our example we will choose our 48 month Cliff.
    • Vesting Start Date – defaults to the Date of Grant, but can be changedVesting Schedule tab
      Figure 31. The Vesting Schedule screen is where you define the vesting schedule and vesting start date
  5. Click the Generate Schedule. Corporate Focus calculates the vesting schedule based on the selected type and the vesting start date. The results appear in the Schedule Details section of the screen. Here we see the results of our 48-month Cliff.
    Vesting Schedule Details tab
    Figure 32. Look at vesting schedule details for dates, shares, and running totals In the top row of the Schedule Details screen we see the values for the first 12 months of our 48-month Cliff vesting schedule (see Figure 17). Using our ongoing example, we see that on 3/22/2012, a total of 31 shares vested – this being 24.80% of the 125 shares that were granted on 3/22/2011.In Figure 33, we see the remaining portion of the 35 month period where 2.083333% of the 125 shares vested monthly and finally in the last row, the third line of our Cliff where the remainder vested.
    Vesting Schedule Details tab
    Figure 33. Use the scroll bar to view the lower portion of the vesting schedule
  6. Click the Exercise/Cancellation link. The Early Exercisable check box is enabled so long as the ownership type record (Option Information section) is defined to allow early exercise. If this option grant is entitled to an early exercise provision, select the Early Exercisable check box. If the check box is selected, you will be able to exercise the options outstanding number regardless of whether the options have become vested.
    Exercise/Cancellation Summary tab
    Figure 34. You can flag an option record as early exercisable
  7. Click the Enter Legal Information link. Choose the Owner Type from the corresponding drop-down list. You use owner types to group names based on investors, participants, founders, management, etc. This is a key feature in the
    Corporate Focus Capitalization Table – by Name
    . Note: This field is filled in by default if the name being entered is already being used as an officer, director, or participant. For complete information on setting up Owner Types, see the Corporate Focus Help topic Add Owner Type.
    Add Legal Information
    Figure 35.Here you specify the Owner Type, which is a key feature in the Corporate Focus Capitalization Table – by Name
  8. Click Save to save the ownership ledger record.

How to Cancel Unvested Options

In Corporate Focus there are two ways that you can cancel unvested options. You can use the Changes screen, or you can set up Corporate Focus to automatically cancel both the unvested options when a participant is terminated, and the outstanding options after the exercise period ends. Using the automatic feature assures that your dates and numbers are precise.

How to cancel options using participant terminations

When you terminate a participant, a pop-up window will appear with the number of unvested options there are to cancel. At that point, you can either accept or modify the Exercise Period End Date (calculated and drawn from the Option type record). When that date is reached, all remaining outstanding options are cancelled.

When you terminate a participant, Corporate Focus checks to see if that participant exists in the Related Participant field for any options records. And if so, for those records, checks to see if there are any unvested options.

There are two key points to setting up this process so that it happens automatically:

  1. Selecting the Cancel unvested options for terminated participant in the Option Information section of the option ownership type record (see step 4 in Setting Up an Option Plan).
  2. Designating a Related Participant for whom the options are granted on the ownership ledger record (see Figure 36).

If the Cancel unvested options for terminated participants check box is selected and you choose not to use the Update Option Records for Terminated Participant screen to cancel the unvested options, then Corporate Focus cancels the unvested options automatically when the overnight script is run, assuming that the participant has a termination date. Note that if a participant record exists for the selected owner, then that participant record appears as the default in the Related Participant field.

arrow For example: We will terminate participant John Ment and have Corporate Focus automatically cancel unvested options.

In order to complete this entry in Corporate Focus, follow these steps:

    1. On the Corporate Focus Companies screen click People and choose Participants.
    2. Select the name of the participant and then click Terminate (Add button).
      Participants screen
      Figure 36. Select the name of the participant and then click Terminate

    1. In the Terminate Participant pop-up window, enter the Termination Date, Reason for Termination, and then click Save. In our example we’ll use 4/1/2012 as the termination date.
      Terminate Participant confirmation
      Figure 37. The Terminate Participant pop-up window
    2. In the Update Option Records for Terminated Participant pop-up window, review the Number Unvested to Cancel, the Vesting Stop Date (date of termination), and the Exercise Period End Date, and then click OK.
      Update Option Records for Terminated Participant
      Figure 38. Review record information for the terminated participant
    3. To see how this transaction appears in the ledger record, now go to Ownership > Ledger, select the ledger record, and then click View (View button). On the Details tab you will now see the Exercise Period Ends date has been filled in based on The exercise period will end field. In our example, this is 90 days (set up in the option plan) and the date is 90 days after the termination date: 6/30/2012.
      Details tab
      Figure 39. The Exercise Period Will End and corresponding Date field populate automatically
    4. Now click the Exercise/Cancellation link. Here you will see the historical record of the participant termination that displays the date of the termination and the number of shares that were cancelled.
      Exercise/Cancellation Summary tab
      Figure 40. The history record of the cancellation of options for the terminated participant
    5. Now, when 6/30/2012 occurs, Corporate Focus will automatically cancel the 188 options outstanding if the participant does not exercise their options. If this occurs, your Exercise/Cancellation screen will now look like this:
      Exercise/Cancellation tab
      Figure 41. Automatic cancellation of outstanding options

 

How to cancel options using the Changes screen

You can use the Changes screen to cancel options for one or more outstanding option grants of the same ownership type. In the case of terminated participants, you will have to manually cancel the unvested options when the participant is terminated and, after the exercise period expires, also manually cancel the outstanding options.

Note: We are assuming that you are not using the automated cancellation features. For more information, see step 4 in the section Setting up an Option Plan.

arrow For example: We will manually cancel unvested options after a participant is terminated and then cancel the remaining outstanding options after the exercise period ends.

In order to complete this entry in Corporate Focus, follow these steps:

  1. On the Corporate Focus Ownership menu click Ledger.
  2. Select the ownership record and then tag the security by placing a check mark in the Tag column.
  3. Click the Changes button (Changes button).
  4. In the Select change dialog choose Exercise or Cancel, enter the Date of the participant’s termination, in our example 4/1/2012, and then click OK.
    Select Change popup window
    Figure 42. The Select Change pop-up windowDuring this procedure, Corporate Focus calculates the number of options outstanding, vested, and exercisable based on this date.
  5. At the top right of the screen you will see three options from which to choose. The lower part of this screen displays the cancellation details. Because we have just terminated a participant, choose Cancel All Unvested.
    • Exercise/Cancel – select to exercise or cancel options
    • Cancel All Unvested – select to cancel unvested options for the selected ownership record. The Cancel column in the summary table updates to show the number of unvested options for each option
      grant. Note: Corporate Focus can be set up to automatically cancel unvested options when termination information is entered for a participant record. For more information, see step 4 in the section Setting up an Option Plan.
    • Cancel All Outstanding – select to cancel outstanding options for the selected ownership record. The Cancel column in the summary table updates to show the number of outstanding options for each option grant.
      Exercise/Cancellation Details
      Figure 43. The display showing the number outstanding and number exercisableWhen you select Cancel All Unvested, the screen changes to display the number of options to cancel.
      Cancel All Unvested screen
      Figure 44. The number of unvested shares to cancel is displayedWhen you select Cancel All Unvested, the screen changes to display the number of options to cancel.
  6. Click Save to cancel the unvested options. Keep in mind that there may still be outstanding options to cancel upon the exercise period end date.
  7. Assuming you have not set up Corporate Focus to automatically cancel outstanding options, then, after the Exercise Period Ends date arrives, you must now remember to cancel the remaining outstanding
    options. Repeat steps 1 – 5. This time in step 4, enter the Date as the date of the Exercise Period Ends, typically 3 months after the termination date, in our example 6/30/2012.In step 5, choose Cancel All Outstanding. You will see the number of shares that remain outstanding, in our example 188
    shares
    . Note: The 62 outstanding shares combined with the 188 unvested shares that were cancelled 4/1/2012 equals the 250 shares that were cancelled automatically in the example in the section How to cancel options using participant terminations.
    Cancel All Outstanding record
    Figure 45. The number of outstanding options to cancel is displayed
  8. Click Save to cancel the outstanding options. Corporate Focus changes the record’s Outstanding status from Yes to No when the options outstanding number becomes zero. Cancelled options then may or may not be re-added to the pool of available options for the ownership type, depending on how the ownership type is defined.
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