Understanding Cap Tables and Equity Sharing in Nevada

Understanding Cap Tables and Equity Sharing in Nevada

What Is a Cap Table?

A capitalization table (cap table) is your company’s equity roadmap. It shows who owns what percentage of your business,whether you’re an LLC or C-Corporation. Think of it as the master record that tracks all shareholders, their ownershippercentages, and the types of equity they hold—from founder shares to employee stock options to investor preferredstock.

Why Cap Tables Matter in Nevada

Nevada’s business-friendly laws make it a popular choice for company formation, but proper equity management remainscrucial. Your cap table serves as the foundation for major business decisions: raising capital, bringing on partners,compensating employees, and eventually selling your company. Without accurate records, you risk legal disputes, taxcomplications, and missed opportunities.

Fair and Transparent Equity Sharing

Sharing equity fairly starts with transparency. Every stakeholder should understand their ownership stake, how it mightbe diluted by future funding rounds, and what rights their shares carry. For LLCs, this means clearly definingmembership interests and voting rights in your operating agreement. For C-Corps, it involves setting up proper shareclasses and understanding the difference between common and preferred stock.

Key Equity Principles

• Document everything: Every equity grant, transfer, or buyback needs proper paperwork

• Set clear expectations: Explain vesting schedules, dilution, and liquidity options upfront

• Regular updates: Share cap table changes with stakeholders after major events

Understanding Vesting: Earning Your Equity Over Time

Vesting protects both your company and your team members. Instead of granting equity all at once, vesting distributesownership over time—typically four years with a one-year cliff. This means you earn 25% of your equity after the firstyear, then the rest monthly over the following three years.

Why is vesting fair? It rewards commitment and sustained contribution. If someone leaves after six months, they haven’tearned the full equity package—protecting other stakeholders who continue building the company. Conversely, team memberswho stay and deliver value earn their full stake, aligning long-term incentives with company success.

Stock Options vs. Restricted Stock

Early-stage companies typically offer stock options—the right to purchase shares at a fixed price. As companies mature,they might switch to restricted stock units (RSUs), which are actual shares granted upon vesting. Each has taximplications you should understand:

• Stock options require you to purchase shares, creating potential tax obligations when exercised

• RSUs are taxed as ordinary income when they vest, but you don’t pay to acquire them

• Early exercising options can provide tax benefits but requires upfront investment

Tax Considerations for Equity

When you exercise stock options, you may face two types of taxes:

1. At exercise: The difference between your purchase price and current value (the “bargain element”) may triggerAlternative Minimum Tax (AMT) for ISOs or ordinary income tax for NSOs

2. At sale: Gains are taxed as either short-term (ordinary income rates) or long-term capital gains (lower rates)depending on how long you hold the shares

Understanding these implications helps you plan your equity strategy. Some choose to exercise early when the bargainelement is small, minimizing tax impact while starting the clock for long-term capital gains treatment.

Nevada-Specific Considerations

Nevada offers unique advantages for equity structuring. The state has no personal income tax, potentially reducing yourtax burden on equity compensation. Nevada also provides strong privacy protections for business owners and flexiblecorporate structures that can accommodate complex equity arrangements.

Making Smart Equity Decisions

Your equity represents more than just potential money—it’s your stake in the company’s future. Consider these factorswhen managing your equity:

• Risk tolerance: Can you afford to exercise options that might become worthless?

• Time horizon: How long can you wait for liquidity?

• Tax planning: Will exercising now save taxes later?

• Company outlook: Do you believe in the business’s long-term success?

Professional Guidance

Equity decisions have lasting legal and tax consequences. Work with qualified attorneys and accountants who understandboth Nevada law and federal securities regulations. At Neon Law, we help Nevada businesses structure their equityproperly from day one.

Building for the Long Term

Your cap table tells your company’s story—who believed in it, who built it, and who owns it. By maintaining accuraterecords, sharing equity fairly, and using vesting schedules wisely, you create a foundation for sustainable growth.Remember: equity isn’t just about ownership percentages. It’s about aligning incentives, rewarding contribution, andbuilding something valuable together.

This content is for informational purposes only and does not constitute legal, tax, or financial advice. Consult withqualified professionals before making equity-related decisions.