Organizing the Corporate Book

Chris Schwalbach  ·  March 7, 2017  ·  7.3 min

Organizing corporate data, whether for M&A finance or investor due diligence, is often panic filled. It’s one of those “where the hell is everything” kind of late-Thursday afternoon bummer activities.  I think the reason so many companies don’t maintain this information on a regular basis is that there’s just not a good system around for organizing it.

For the clients of AVL Growth Partners, we try to employ a fairly straightforward folder structure for the corporate book.  Of course, it gets filled with lots of unnecessary information too and we have to clean it up (via Archive folders) to make sure it stays clean.  Below, you’ll find the key folders that we include in our corporate book.  This structure works really well for private companies with revenue in the tens of millions.

You’ll note that there are a couple exceptions of critical documents that we do not retain in the corporate book.  We do not organize Human Resources files, Executive Employment Agreements, Customer Contracts, Vendor Contracts, or NDAs, in the Corporate Book folder.  The reason for that is two-fold:

First, the HR related documents should be restricted to HR personnel (based on your organization).  We have another article on our short-cuts for effectively organizing electronic human resource files (through the entire talent life-cycle – recruit to term).

Second, customer and vendor contracts (and NDAs) often have to be referred to by many people (e.g. sales, operations, marketing) in the organization, thus these documents, while critical, need to be organized outside the Corporate Book.

So, back to the Corporate Book itself. We recommend a Series of 10 numbered folders.  The folders are below with each of their key contents or sub-folders.

1. Charter Docs

For an LLC, this will include a sub-folder for each fully executed version of the Operating Agreement.  As the Operating Agreement is modified/updated (e.g. the 2nd Amended & Restated Operating Agreement), then a second folder is generated.  Draft/Legal versions may be put in Archive folders within this folder, but be sure to make the official executed version clearly visible.  For C-Corps, this includes Certificates of Incorporation and subsequent amended documents.

2. Corporate Filings

The corporate filings folder is designated for all of the “company numbers” and licenses that are obtained whether they be state or federal.  This often includes FEIN forms, unemployment numbers, sales tax numbers, registration numbers, etc.  We often use state abbreviations as sub-folders if the company operates in a lot of states. This is also where we store the annual renewal forms (“receipts”) with each state in which we’re doing business in order to remain in Good Standing.  This may even include a special tax district that you need to track as well.

3. Board Meetings & Minutes

We create a sub-folder for each board meeting using a YYYY-MM-DD format for the folder title.  We prepare the draft materials in this folder, but typically delete draft materials and leave only key data files, the final board package and the approved minutes from the meeting in the folder.  Your corporate attorneys will tell you that keeping it clean of “other items” is good practice.

4. Board Resolutions

We like to track Board Resolutions in their own folder because the Sub-Folders are usually organized by subject matter”, which makes them easier to locate when required.  This is not the place to discuss the merits of understanding when you need a documented resolution, good housekeeping, or good practices for Board Resolutions (or minutes in #3 above). Let’s leave that to the attorneys. Suffice to say: document the resolutions, keep the signed/final versions and ditch the drafts.

5. Equity Funding

We like to have a folder for every capital round of the company.  It’s super easy.  If there are two closings of a Series A that are pretty far apart, then we typically create separate folders.  Also, we put all convertible notes in the Equity Funding folder (not the Debt Funding folder below).  Finally, we create separate sub-folders for Term sheet, information provided, executed documents, Reg D Filings, etc.

So, a set of sub-folders could look like the following:

  • Founders (2012-10)
  • Friends & Family (2013-04)
  • Convertible Note1 (2013-10)
  • Series A (2014-08)

The challenge of keeping this organized is that during the time period in which you are pursuing investors, you might have documents from 2 or more venture firms or lead investors for any particular round.  To assist with this, we create temporary sub-folders by investor group name.  After a round/deal closes, we go back and archive the older vendor folders into an Archive folder. Note: I hate deleting because it’s information that you might want to retrieve in the future.

6. Debt Funding

Similar to the Equity folder, there should be a folder for each financial debt instrument.  We tend not to put operating and capital leases here because, again, those are more operational in nature and – while critical to the corporate book – we believe that they should be kept where the folks that need to refer to them regularly have ready access.

For one of the companies that I’m working with right now, we have gone through a number of debt deals.  We had an initial revolving line of credit with Bank ABC and a small venture debt loan with Bank ABC.  These loans were underwritten and went through their cycle, then we refinanced with a larger venture debt provider XYZ, and finally had a 2nd Revolver with bank SVB.  It looks like this:

  • $1.0M RLOC Bank ABC (2013-02)
  • $3.0M Venture Debt Bank ABC (2013-02)
  • $7.0M Venture Debt Bank XYZ (2015-01)
  • $2.3M RLOC Bank SVB (2015-03)

Again, as you’re pursuing a venture debt deal, you may not know the amount or the investor, so again, just use sub-folders and simplify/clean-up once the transaction closes.

7. Cap-Tables

Historically, we have always heavily used a cap-table folder.  This has changed significantly in the past couple years as we are moving many of our clients to eShares, which is a great platform for both cap-table management and 409A valuations.  That is certainly a topic for another discussion.  With that said, let’s assume you are managing the cap-table internally for now.

Under this folder, we usually also maintain the company’s option plan (or profit interest units) agreements [sub-folder 1] and documentation of all the documented option grants [sub-folder 2].

Then, we have a folder for the cap-tables [sub-folder 3].  Our preference is to maintain a “MASTER” and then save a month-end or quarter-end cap-table periodically so as to tie out to periodic equity roll-forward schedules (for audit readiness).  It’s probably a bit overkill, but it’s worth it if there are lots of changes during the year and you want to look back at them.

The composition of the cap-table (if you want to build and manage yourself) is going to be a future post.  Again, eShares has a compelling offering, but some companies want to take it a little further on their own before bringing on eShares.  It makes sense for different companies at different times.

Finally, we create a sub-folder for doing waterfall and/or scenario analysis [sub-folder 4].  Sometimes, we are doing forward looking “pro-forma” cap-tables to compare the dilution effect of Scenario A vs B.  We always save these because we’ve learned over time that we get asked for them 2 years later. Yes, it’s not truly a Corporate Book item per se, but we think it’s easier to keep it near the Cap-Table for ongoing reference.

8. Valuations

Yes, we will again reference eShares here, but regardless, save your valuation reports here for investor due diligence and organize sub-folders by date.

9. Investor Communications

We’ve learned over time to always save everything that you’ve sent out to investors because they’ll have questions and you’ll want to go back and remember what you said or presented.  We create sub-folders by date (YYYY-MM-DD) and try to put the email and all attachments into each folder.

We will have future posts as to the importance of investor communications, the best content for valuable investor communications, and discuss frequency of these communications.  It’s an area typically under-served by many early stage / high-growth companies.

10. Other

There’s always “other” stuff.  There are lots of different things that could go here such as legal settlements, insurance claims documentation, or other ‘one-time’ events that you’ll certainly be asked for at some point.

This is not rocket science and it’s really not that hard to maintain either, but so many companies that we work with don’t have a good organization for these corporate documents. It may seem like a pain now, it’ll but it’ll save you valuable time down the road.

By Chris Schwalbach
AVL Growth Partners, 2017