Introduction

Your startup’s cap table is more than just a spreadsheet—it's the legal backbone of your company’s ownership. But too often, founders don’t realize how high the stakes are until they’re deep in a fundraising round and facing investor due diligence.

At Zecca Ross Law, we’ve helped dozens of founders prepare for—and survive—investor scrutiny. One common pattern? Cap table mistakes that could have been avoided with early legal oversight. These mistakes not only slow down deals—they can tank them altogether.

Here are 6 legal cap table mistakes that can cost you when it matters most.

1. Unclear or Undocumented Founders’ Equity

In the early days, equity agreements between co-founders are often made verbally or vaguely documented. If founder shares aren’t properly issued, signed, and recorded, it becomes a nightmare during diligence.

Why it matters: Investors want to see clear vesting schedules, IP assignment, and definitive ownership. If you can’t prove who owns what, you lose credibility—and potentially the deal.

Our fix: We draft and memorialize founder stock purchase agreements, IP assignments, and vesting schedules to ensure ownership is clean and legally enforceable.

2. Poorly Tracked SAFEs and Convertible Notes

SAFEs and convertible notes are great for early fundraising—but if you’re not tracking their terms carefully, they can wreck your cap table later. Are you accounting for:

  • Valuation caps
  • Discounts
  • Most favored nation clauses
  • Automatic conversion triggers

Why it matters: Misunderstanding these terms can dramatically impact dilution and ownership after conversion—leading to unexpected cap table shock for you and your investors.

Our fix: We review and summarize outstanding instruments and model how they’ll convert under multiple fundraising scenarios. No surprises.

3. Equity Issued Without Board or Stockholder Approval

Many early-stage companies issue stock options or shares without the necessary board or stockholder approvals. This includes:

  • Option grants without signed resolutions
  • Issuances that exceed authorized shares
  • Backdated or unapproved grants

Why it matters: Improperly issued equity can be invalid—or worse, create tax liabilities for recipients and exposure for the company.

Our fix: We perform a legal audit of prior grants, prepare retroactive approvals where necessary, and help ensure future equity is compliant with Delaware and IRS rules.

4. Missing or Conflicting Equity Records

Your spreadsheet might say one thing—your legal records another. If signed agreements, stock certificates, or equity plan documents are missing or inconsistent, investors will flag it.

Why it matters: Inconsistent or missing documentation is a red flag for investors and can trigger lengthy delays or renegotiations.

Our fix: We cross-check your cap table against executed documents, prepare missing paperwork, and build an investor-ready equity data room.

5. Outdated or Non-Compliant Option Plans

Your option plan needs to align with your 409A valuation, stockholder approvals, and local employment laws. Plans borrowed from online templates often don’t hold up during due diligence.

Why it matters: If your option plan isn’t legally valid, employee equity could be subject to penalties under IRS Section 409A—or outright unenforceable.

Our fix: We draft or update equity incentive plans to be legally compliant and investor-friendly. We also ensure proper board resolutions and grant documentation.

6. No Clean, Investor-Grade Cap Table

If your cap table isn’t updated in real time—or is being tracked manually in Excel—it increases the risk of human error and incomplete records.

Why it matters: VCs and institutional investors expect a cap table that reflects fully diluted ownership, post-money scenarios, and clean legal documentation.

Our fix: We help clients move to tools like Carta or Pulley, clean up inconsistencies, and maintain a cap table that investors can trust.

Don’t Let Cap Table Chaos Cost You the Round

The best time to fix your cap table was yesterday. The second best time is before your next fundraise. At Zecca Ross Law, we offer cap table audits, cleanup services, and ongoing legal support as part of our Outside General Counsel offering.

Whether you're preparing for a SAFE round, Series A, or even a secondary transaction, we’ll help you build a cap table that stands up to scrutiny—and sets your company up for success.

📞 Book a consultation