How Can Equity Management Software Help with Corporate Restructuring?
In one of McKinsey’s Global Survey, they found that less than 1/3rd of companies that underwent corporate restructuring could sustainably improve their performance. However, when companies implemented comprehensive actions in goal-setting, design, and implementation, the success rate shot up to as high as 78%.
Once again, we are reminded that the devil resides in the details.
Equity management software can play an important role in this process. By enabling companies to analyze ownership structures, model the impacts of equity and debt changes, and track progress effectively, these tools can drive better outcomes in restructuring efforts.
In this article, we will explore how equity management software can support corporate restructuring success.
Benefits of equity management software in corporate restructuring
Some of the ways in which an equity management software can support corporate restructuring are as follows:
Automated record of ownership structure changes
An equity management software’s foremost utility is to record all changes to ownership structures. As you issue new shares, convert securities, make changes to employee stock option pools, and add or remove shareholders, the software will automatically create a record of all changes. Such records are quite useful when incoming investors want to perform due diligence or when regulators and tax authorities perform audits.
Due to the complex nature of corporate restructuring, disputes with investors, employees, and creditors are likely to arise. In such situations, it is important to validate that the rights of all stakeholders are respected.
When changes require the consent of multiple parties it is important to verify that the consent was taken as per the terms of shareholder agreements, company bylaws, or any relevant contracts.
Navigate uncertainty effectively with Scenario modelling
Corporate restructuring can involve issuing new shares, converting debt to equity, introducing new equity classes, buybacks and cancellations, and introducing or changing employee stock options pools.
Note: Whatever your motivations may be for restructuring your organization, there will always be a number of routes on the tables, each of which carries its own set of pros and cons.
A ton of financial modeling must be done to properly weigh each restructuring route. Fortunately, modern equity management software comes with a scenario modeling feature that allows you to visualize corporate structure changes.
Instead of manually creating a model on a spreadsheet, which can be error-prone and must be perfected through trial and error, you would be working with a pre-built and duly tested scenario modeling feature. All you need to do is input the changes you expect to make and your assumptions. Then, the equity management software will generate projections and visualizations, enabling you to focus more on analyzing and weighing different options than on working with spreadsheets.
If you expect a lot of variances in the variables you must assume, you can set the scenario modeling feature to generate projections for multiple upside and downside scenarios. By enabling this kind of sensitivity analysis, equity management software facilitates in-depth analysis at a fraction of the effort.
Simplifies equity changes
Equity management software will allow you to digitally issue new shares, cancel issued shares, and add or remove shareholders in a few minutes. However, when you try to do so manually, you must draft and review various legal documents which takes a considerable amount of time and incurs legal expenses.
Often, miscommunications and lapses in coordination between different teams and stakeholders cause errors or discrepancies in legal clauses or calculations. Typically, these mistakes push back the timeline by weeks or even months and experience an increased workload on their legal and finance teams. This can be devastating if the corporate restructuring involves equity changes as well as changes in operations.
On the other hand, in a cap table, a standardized set of legal documents is used to facilitate agility in equity changes.
Eqvista Equity management software enables you to seek board approval for equity changes. All you need to do is prepare a proposal that will be sent through the equity management software to all board members. Then, the software will compile the board’s votes based on which you can make the required changes.
Managing employee equity
In a corporate restructuring, changes will be seen in your company’s valuation which directly impacts the value of equity compensation. To honor any previous agreements with employees and protect the interests of investors, you may need to update your equity compensation plans. This may involve acceleration or deceleration of equity compensation, changes in exercise prices, and changes in number of shares or units offered.
To a normal employee, the main concern would be the changes in the value of equity compensation and any tax liabilities. However, to a top executive or director, the ownership percentage expected from equity compensation might also be important. Should such parties expect changes in equity compensation plans, you may need to negotiate terms and accommodate their needs.
Conversely, you may also need to ensure that the corporate restructuring does not unfairly shift the ownership structure to those receiving equity compensation. In either case, you must explore a number of possibilities, explain your propositions to stakeholders, and finally, modify the equity compensation plans if necessary.
Equity management software features like scenario modeling, electronic board proposals, and the ability to issue or cancel shares and update shareholder records can significantly enhance the efficiency of employee equity management.
Cross-team collaboration
In a corporate restructuring, while pursuing financial objectives, it’s crucial to avoid alienating employees or ending up in a legally disadvantageous position. Hence, a smooth collaboration between finance, human resources, and legal teams is crucial.
As mentioned earlier, in corporate restructuring, you might need to make changes to equity compensation plans. To ensure that these changes fit in your budget, match the employee needs, and comply with labor laws, you will need the input of finance, legal, and human resources teams.
Similarly, when you are weighing restructuring routes, you may need to confirm what is legally permissible and what is fiscally viable. This, too, requires input from different teams.
Since corporate restructuring attracts scrutiny from regulators and tax authorities, you may need to compile financial and legal records to defend yourself in the event of an audit. To facilitate smooth audits, equity management software will store financial and legal records in a central and secure location. During restructuring, it enables smooth collaboration between teams while controlling access to sensitive information through customizable access levels. This ensures key data remains protected.
Additionally, the software supports collaborative analysis with advanced tools like scenario modeling, allowing team members to generate, share, and update reports seamlessly.
Eqvista- The Future of Equity Management!
Equity management software maintains an automated record of ownership structure change that can help you defend your actions in audits and also resolve disputes with and between different stakeholders. These tools can also help you pick the right corporate structure to aim for by helping you weigh the pros and cons of each structure in its scenario modeling feature.
Additionally, you can use equity management software to make equity changes within minutes. This same process can take several weeks and even months when done manually.
You can also modify your equity compensation plans and employee stock option pools electronically through these tools. Since you can control access levels in equity management software, it enables collaboration without risking divulging sensitive information.
If you’re looking to align your cap table with your corporate restructuring, this comprehensive guide can provide valuable insights and practical steps.
