Pro Forma Capitalization Table - Enhanced Legal Workflow Prompt

You are tasked with drafting a comprehensive Pro Forma Capitalization Table that serves as both an analytical instrument and a foundational corporate governance document. This table must illustrate with precision the ownership structure of a company before and after a contemplated transaction or financing event, providing stakeholders with clear visibility into dilution effects, ownership shifts, and the economic implications of the proposed corporate action.

Gathering Essential Information and Context

Before beginning your analysis, you must gather all relevant information about the company's current capitalization structure and the contemplated transaction. Search through any available corporate documents, including the company's certificate of incorporation, stockholder agreements, option plans, convertible note agreements, SAFE instruments, and prior capitalization tables. Extract specific details about existing shareholders, their share counts and classes, outstanding option grants with their exercise prices and vesting schedules, and any convertible securities with their conversion terms. If the company has previously issued preferred stock, identify the specific rights attached to each series, including liquidation preferences, participation rights, anti-dilution provisions, dividend rights, and conversion ratios.

Simultaneously, gather comprehensive information about the proposed transaction. For equity financings, determine the amount of capital to be raised, the pre-money valuation, the price per share for new securities, the identity of new investors and their respective investment amounts, and any changes to the option pool size or allocation. For conversion events, identify which instruments are converting, the conversion mechanics including any valuation caps or discount rates, and the treatment of accrued interest or dividends. For mergers or other corporate reorganizations, understand the exchange ratios, the treatment of each class of securities, and any cash consideration or earnout provisions.

Establishing the Document Framework and Assumptions

Begin the capitalization table with a formal header that identifies the complete legal name of the company as registered with the applicable Secretary of State or equivalent jurisdiction. Include the date of preparation and clearly designate this as a pro forma analysis rather than a final or binding document. Specify the reference date that establishes the baseline capitalization and identify the type of transaction being modeled, whether it is a seed financing, Series A preferred stock issuance, convertible note conversion, option pool expansion, stock split, or other corporate event.

Articulate with precision the foundational assumptions that underpin your analysis. State the pre-money valuation of the company and explain how this valuation was determined, whether through negotiation with investors, a 409A valuation, or other methodology. Specify the total amount of new capital to be raised and the resulting post-money valuation. Calculate and display the price per share for new securities, showing your mathematical derivation. If the transaction involves preferred stock, detail the liquidation preference multiple, noting whether it is participating or non-participating, and specify any anti-dilution protection such as weighted average or full ratchet provisions.

Address the treatment of the employee option pool with particular care, as this significantly impacts investor ownership calculations. Specify whether the option pool will be expanded before or after the new investment for purposes of calculating investor ownership percentages, as this convention materially affects dilution. State the target size of the post-transaction option pool as a percentage of fully-diluted capitalization and calculate the number of shares that must be added to achieve this target. For convertible instruments such as notes or SAFEs, detail the conversion mechanics including any valuation caps, discount rates to the equity financing price, most-favored-nation provisions, or interest accrual terms.

Presenting the Current Capitalization Structure

Construct a detailed baseline snapshot of the company's ownership structure immediately prior to the contemplated transaction. Create a comprehensive table that lists every shareholder by name or category, the class of stock held, the number of shares owned, and the ownership percentage calculated on both an as-converted basis and a fully-diluted basis. The as-converted calculation should assume that all preferred stock converts to common stock at the applicable conversion ratio but should not include unissued shares from the option pool. The fully-diluted calculation should include all issued and outstanding shares on an as-converted basis plus all shares subject to outstanding options and warrants, plus all shares reserved but unissued in the option pool.

For companies with multiple classes of stock, organize the presentation by share class, listing each series of preferred stock in reverse chronological order of issuance, followed by common stockholders, and concluding with a detailed breakdown of the option pool. For each class of preferred stock, include a footnote or adjacent column that summarizes the key economic rights, particularly the liquidation preference amount and multiple, participation rights, and any accrued but unpaid dividends. This information provides essential context for understanding the economic distribution in various exit scenarios.

Present a separate section detailing the current option pool, showing the total number of shares reserved for issuance, the number of shares subject to outstanding grants, the number of shares that have been exercised and are now issued and outstanding as common stock, and the number of shares remaining available for future grants. For material option grants, particularly those held by founders or executives, consider including information about exercise prices and vesting schedules, as these details may be relevant to the transaction analysis. If the company has issued warrants or other derivative securities, include these in a separate category with details about their exercise prices, expiration dates, and the number of shares issuable upon exercise.

Modeling the Transaction and Pro Forma Adjustments

Detail each adjustment that transforms the current capitalization into the post-transaction structure, presenting these changes in a logical sequence that mirrors the actual mechanics of the transaction. For new equity issuances, identify each purchaser or category of purchaser, the number of shares to be issued, the purchase price per share, and the aggregate investment amount. Calculate the ownership percentage that each new investor will hold on both an as-converted and fully-diluted basis, ensuring your calculations reflect the agreed-upon treatment of the option pool.

If the transaction involves conversion of existing securities, present the conversion mathematics with transparency and precision. For convertible notes, show the principal amount, any accrued interest, the total amount converting, the conversion price determined by applying any applicable valuation cap or discount, and the resulting number of shares issued. For SAFE instruments, apply the conversion formula specified in the instrument, whether it uses a valuation cap, a discount to the equity round price, or a most-favored-nation provision. Display these calculations in a clear format that allows readers to verify the mathematics and understand how the conversion price was determined.

Address any option pool expansion by calculating the number of new shares that must be added to achieve the target pool size. Show whether this expansion occurs before or after the new money investment for purposes of calculating investor ownership percentages, as this timing significantly affects the dilution borne by existing shareholders versus new investors. If the transaction contemplates the exercise of outstanding options or warrants, specify which instruments are assumed to be exercised, the exercise price, the number of shares issued, and the proceeds received by the company.

Document any share repurchases, cancellations, or retirements that occur as part of the transaction. For example, if the company is repurchasing shares from departing founders or employees, show the number of shares repurchased, the repurchase price, and the resulting reduction in outstanding shares. If any shares are being cancelled without consideration, such as unvested options held by terminated employees, document this reduction in the outstanding share count.

Constructing the Post-Transaction Capitalization Table

Present the post-transaction capitalization in a comprehensive tabular format that allows readers to understand both the mechanics of the transaction and its ultimate effect on ownership and dilution. The table should include columns showing each holder's name or category, the class of securities held, the number of shares held before the transaction, the number of new shares issued or converted in the transaction, the total number of shares held after the transaction, the ownership percentage on an as-converted basis, and the ownership percentage on a fully-diluted basis.

Organize the table by share class, presenting the new series of preferred stock first if the transaction creates a new series, followed by any existing series of preferred stock in reverse chronological order, then common stockholders organized by category such as founders, employees, and other holders, and finally a detailed breakdown of the option pool showing shares subject to outstanding grants and shares remaining available for future issuance. Calculate and display subtotals for each share class and category, and present a grand total showing the company's total capitalization on both an as-converted and fully-diluted basis.

Ensure that all ownership percentages sum to one hundred percent and that your fully-diluted calculation includes all outstanding shares on an as-converted basis, all shares subject to outstanding options and warrants, and all shares reserved in the option pool whether or not they have been granted. Verify that your calculations are internally consistent by checking that the sum of all shares in the post-transaction column equals the total capitalization shown in your grand total row.

For companies with complex capital structures involving multiple series of preferred stock with different liquidation preferences, consider including additional analytical columns or a supplementary schedule that shows the economic distribution to each class of stockholder in various exit scenarios. For example, you might model the distribution of proceeds in a sale of the company at one times, two times, and three times the post-money valuation, showing how the liquidation preference stack and participation rights affect the economic returns to each class of stockholder.

Providing Methodological Notes and Disclosures

Include comprehensive footnotes and explanatory notes that enhance the document's utility and ensure proper interpretation by readers who may not be intimately familiar with capitalization table conventions. Disclose the specific methodology used for calculating ownership percentages, particularly addressing whether unissued shares in the option pool are included in the denominator for calculating investor ownership percentages. The market convention is typically to include the entire option pool in the fully-diluted calculation, but practices may vary, and transparency about your methodology is essential.

Provide clear disclaimers noting that this pro forma analysis is based on assumptions and estimates, that actual transaction terms may differ from those modeled, and that the document does not constitute legal or financial advice. Include a statement that the pro forma table should be reviewed by legal counsel and financial advisors, and that it does not address tax consequences, securities law compliance requirements, or accounting treatment. For transactions subject to board approval, stockholder approval, or regulatory approval, note that the pro forma is contingent upon obtaining such approvals and that the transaction may not be consummated on the terms modeled.

Add explanatory notes for any unusual features of the capital structure or transaction mechanics. If the preferred stock includes weighted average anti-dilution protection, explain how this protection would operate in the event of a future down round. If there are multiple liquidation preference stacks or participating preferred provisions, explain how these features affect the economic distribution in various exit scenarios. If certain information is estimated or subject to change, clearly mark these items and explain the basis for the estimates, such as noting that the final purchase price per share may be adjusted based on a final pre-money valuation or that the option pool size may be modified based on hiring plans.

Formatting and Presentation Standards

Prepare the final document in a clear, professional format suitable for presentation to company management, board members, investors, and legal advisors. Use a clean tabular layout with clearly labeled columns and rows, appropriate number formatting that displays share counts as whole numbers and ownership percentages to two decimal places, and consistent alignment that enhances readability. Consider using visual formatting such as bold text for subtotals and grand totals, shading or borders to distinguish different sections of the table, and clear hierarchical indentation to show the relationship between categories and subcategories of stockholders.

Ensure that the document is internally consistent in its terminology, referring to share classes, transaction terms, and calculation methodologies using the same language throughout. If you use defined terms such as "Fully-Diluted Capitalization" or "As-Converted Basis," consider including a definitions section that explains these terms for readers who may not be familiar with capitalization table conventions. Include a footer on each page that identifies the document as a pro forma analysis, includes the preparation date, and notes that the document is confidential and intended solely for the use of the company and its advisors.

The completed Pro Forma Capitalization Table should serve as a reliable analytical tool that enables stakeholders to evaluate the economic and governance implications of the contemplated transaction, understand the dilution effects on existing shareholders, assess the ownership position of new investors, and make informed decisions about whether to proceed with the transaction on the proposed terms.