What Is A Pro Forma Cap Table?

· 3 min read
What Is A Pro Forma Cap Table?

A pro forma cap table is one of the most common investment vehicles available to individual investors today. It was created by Donald E. Young, III in 1979, as an alternative to the more popular pension plan. Pro-forma essentially means that the account owner is entitled to dividends each year as long as he meets the qualifications. There are a number of advantages and disadvantages associated with this type of investing.

Two12  of a pro forma cap table is that it allows investors to invest their money and benefits from dividends without paying taxes on them. In simple terms, it allows investors to accumulate capital without incurring taxes or any fees. The tax advantage is especially important to younger investors. It is important to note that dividends can be received only once per year, so if the investor wishes to receive payments from more than one source, he needs to purchase more than one share at a time.

Another advantage associated with pro forma cap tables is flexibility. This investing option allows the investor to purchase a great number of shares and allocate them according to several different investment goals. This is done by offering a portfolio of shares that vary in both price and size. Some investors prefer to use their shares as partial interests in portfolios, while others may prefer to utilize them as active investments. Regardless of what type of investor decides to utilize these types of investments, it is important to remember that dividends are not taxable unless the shareholder sells all of his shares or disposes of them.

Investors may also utilize a pro forma cap table to diversify their portfolio. Diversification allows investors to reduce the risk of any given investment by spreading their risk and investment dollars over a larger number of different companies or shares. By doing this, investors do not become beholden to just one financial institution. Instead they can spread their risk between several different companies. Diversification also allows investors to increase their overall return on their investment.

Many institutional shareholders are reluctant to utilize the services of a pro forma cap tables because they assume that these types of financial statements are complex and will be difficult to interpret. In  Two12 , most investors who use this investing tool are very adept at interpreting financial statements and the information contained therein. Investors who purchase these types of shares are also well informed about the businesses they are purchasing. Therefore,  Two12  that these types of stocks are too risky for regular investors is not necessarily true.

The cost of a share of stock can affect an investor's overall return. When an investor purchases shares of stock, he pays a fee that is often based on the cost of a thousand shares. In many cases, this fee is a percentage of the cost of each individual share. However, when an investor purchases a pro forma cap table, the price of the stock is listed and a portion of this fee is deducted from the price per share.

An additional benefit to using a pro forma cap table is that it provides the shareholder with an opportunity to control his portfolio. When an investor owns shares in a company that he does not financially own, he is limited in his ability to trade. Furthermore, if the company goes out of business, the shareholder will lose his investment. However, with a cap table, an investor can still purchase shares, even if he is personally unable to partake in the company's business. For example, if the company went out of business and the investors stock lost half its value, the investor would still be able to purchase shares.

Many individuals who are considering what is a pro forma cap table are also interested in obtaining a document that outlines an exit plan for their portfolio. An exit plan can outline how the investor plans to divvy up the profits among investors so that no one loses out. It can also give investors a guideline on how much money they need to have invested in order to provide a comfortable retirement income level for themselves.