Untangling a Cap Table Built From a Do-It-Yourself Kit

The situation

Zainab called our office on a Tuesday evening after her regular shift driving a school bus, apologizing for the hour before she had even said what the call was about. She and Ines, who worked as an early childhood educator, had started a small side business a few years earlier making and selling children's learning kits at local markets and, more recently, online. What began as a weekend project on top of two full-time jobs had grown into something closer to real, with revenue approaching $100,000 for the first time the previous year.

The trouble, Zainab explained once she got to it, was not the business itself but the paperwork underneath it. Early on, hoping to bring in Carlos, a family member willing to invest a modest amount to help them buy proper equipment, they had used an online incorporation kit to set up not just the company but what the kit called an estate freeze, creating several classes of shares meant to separate Carlos's investment from Zainab and Ines's ownership and control. Neither of them fully understood what the structure did at the time, only that the kit's instructions made it sound like the standard way to bring in an outside investor.

Over the following year, as the business grew and the three of them tried to adjust who held what, they had gone back into the same do-it-yourself system repeatedly, issuing more shares, attempting to cancel others, and generally trying to get the cap table to reflect reality without ever fully understanding the structure they had built. By the time Zainab called us, the company's own share register no longer matched what any of the three of them believed they owned, and a prospective wholesale buyer interested in carrying their kits had asked, reasonably, for a clean picture of who actually controlled the company before moving forward.

Zainab and Ines had tried for nearly three months to sort it out themselves, reading online guides and attempting one more round of corrected filings, before admitting they needed help. The wholesale opportunity had a rough timeline attached to it, and every week spent untangling the structure alone was a week closer to losing it.

What finally pushed Zainab to pick up the phone was a simple question from the wholesale buyer's own accountant, asking for a current list of shareholders and what each of them held. Zainab realized, reading the request over twice, that she genuinely could not answer it with any confidence, and that guessing on a document meant for someone else's due diligence file was not a risk worth taking.

Why this was harder than it looked

On its face, the fix sounded simple: collapse the overlapping classes into one and get the share register to match reality. In practice, the do-it-yourself estate freeze had created several classes of shares with different rights attached, some carrying votes and no fixed value, others carrying a fixed redemption value and no vote, in a structure meant to let Carlos's investment sit apart from Zainab and Ines's control of daily decisions. Layered on top of that were the corrective filings Zainab, Ines, and Carlos had each made independently over the following year, sometimes without telling each other, each attempt made with good intentions and none of them fully undoing what came before.

The result was a company where the online filing system showed one picture, the physical share certificates the three of them had printed out showed another, and nobody's memory of who had agreed to what quite matched either. Under the Business Corporations Act, share classes and the rights attached to them need to be created, amended, and cancelled through specific corporate steps, recorded in the company's minute book and reflected accurately in its articles and share register. None of the do-it-yourself filings had been backed by the internal corporate resolutions or updated articles that would have made them valid changes rather than just entries in a database.

That gap mattered because it meant the company could not simply delete the extra classes and call it done. Every class that had ever been created needed to be accounted for, and every share ever issued under it needed to be properly cancelled, redeemed, or converted through a documented, board-approved process before the company could truthfully say it had a single clean class of shares. Carlos's original investment, still real and still owed to him in some form, had to be carried through the cleanup accurately rather than simply absorbed or erased in the process of simplifying everything else.

Complicating things further, Carlos had understood his investment as giving him a fixed, protected stake regardless of how the business performed, while Zainab and Ines had understood the same arrangement as giving Carlos a modest ownership percentage that would grow or shrink with the company like theirs did. Both readings were plausible given how confusing the original paperwork was, and resolving which one actually reflected what the three of them had agreed to took real conversation before any filing could move forward.

What we did

1. Reconstructed the company's actual corporate history. We pulled every filing made through the online system since incorporation, compared it against the physical share certificates the three of them had printed, and built a single accurate timeline of what had actually happened to the share structure, since no existing document could be trusted on its own without independent verification against the others.
2. Identified every class of shares ever created and what remained outstanding. Several classes existed only on paper with no shares ever properly issued under them, while others held real shares that needed to be dealt with directly, and separating the two was essential before any collapse could happen safely, since treating a paper-only class the same as one with real shares outstanding risked erasing an entitlement someone actually held.
3. Sat down with Zainab, Ines, and Carlos together to confirm what they had actually agreed. Rather than guess at intent from ambiguous documents, we ran a direct conversation about what Carlos's investment was meant to secure, and confirmed the three of them had, in substance, intended a straightforward ownership percentage rather than a fixed, protected return, a distinction that mattered because the paperwork alone could not settle it and getting it wrong would have simply built the next dispute into the corrected structure.
4. Drafted board and shareholder resolutions to formally deal with each class. We prepared the resolutions needed to cancel unused classes, convert or redeem shares issued under classes being eliminated, and authorize a single new class of common shares reflecting each person's confirmed ownership percentage, since a collapse without properly documented board and shareholder approval behind it would have been just as invalid as the do-it-yourself filings it was meant to replace.
5. Amended the company's articles to remove the extra classes. Once the resolutions were signed, we filed articles of amendment collapsing the structure down to one share class, replacing the tangle of overlapping rights with a single, simple set of terms that matched how the three owners actually ran the business, and giving the company articles a wholesale buyer's own lawyers could review without raising questions.
6. Rebuilt the company's minute book and share register from scratch. The existing records were too unreliable to patch, so we assembled a clean, accurate minute book reflecting the corrected structure, giving the company a single source of truth going forward rather than three people's competing memories about who had agreed to what and when, which was the same gap that had let the confusion compound in the first place.
7. Prepared a clear ownership summary for the wholesale buyer's due diligence. With the structure corrected and documented, we put together a short, accurate summary of the company's ownership that Zainab could hand over directly, closing the gap that had put the wholesale opportunity at risk in the first place and letting the accountant's original question finally get a confident, verifiable answer.
8. Walked all three owners through the corrected structure together. Once the filings were done, we held a final session explaining, in plain terms, what each of them now owned and why, so nobody would be left relying on secondhand summaries of what had changed, or tempted, the next time something looked slightly off, to log back into the same do-it-yourself system and make another well-meaning correction on their own.

The outcome

The cleanup took about seven weeks from the first meeting to the filed amendment, faster than the three months Zainab and Ines had already spent trying to manage it themselves. The company ended up with a single class of common shares, split according to the ownership percentages the three of them confirmed together, with Carlos holding a modest stake that grows or shrinks with the business exactly as Zainab and Ines had understood the original arrangement to work.

The legal work cost a few thousand dollars, a real expense for a business still turning revenue in the low six figures, but a small one set against what was at stake: the wholesale opportunity moved forward once the buyer's due diligence review received the corrected ownership summary, and the company avoided walking into that relationship with a cap table that could not withstand a closer look.

What made this a clear win rather than a partial fix was that every open question got resolved rather than papered over. Carlos's stake was confirmed and documented rather than left ambiguous, the extra share classes were properly eliminated rather than simply ignored, and the minute book now gives Zainab, Ines, and Carlos an accurate record they can all rely on going forward, instead of the patchwork of do-it-yourself filings that had put the business at risk in the first place.

Zainab still drives her regular route most mornings, and Ines still works with her class of young children most days, but the side business now has paperwork that will not surprise them again the next time someone asks a serious question about who owns what. Carlos, for his part, said afterward that having his stake actually written down clearly was worth more to him than the ambiguity ever was, even though the confirmed structure gave him a smaller guaranteed floor than he had originally believed he held.

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