Around The Table

Staring some feedback -  as I have had many discussion  with multiple CFOs that use Carta with Israeli operations & employees. They all have the same issues and find it frustrating.

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David Wieseneck
VP Finance
Demostack
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Hi David, thanks for the note! Responding inline below. 

1.  Can not use online exercise (transaction through Carta) for Section 102 or 3(i) grants, and must proceed with the transaction outside of Carta (the user sends the funds directly to the company) and record the exercise in the platform afterwards.You're correct that it's currently a limitation to fully process online exercises through the platform for these grant types. One other potential workaround that some clients lean on is to designate the 102 and 3(i) grants in Carta as "INTL" types for the purpose of supporting the full exercise transaction through Carta. Understandably this may not be an ideal solution for you, as you may prefer to keep the award types properly classified as 102 types. Our Transactions team is continuing to expand this functionality for clients across jurisdictions and for more equity/award types, so we will be sure to surface this feedback to help drive prioritization efforts in this area of the platform.
2. The way that Carta issues option grants & how the employee "signs" the option grant agreement is not acceptable to the Israeli Tax Authority (as we have been advised). It seems that this is known within Carta and we have been advised that we need all Option Agreements to be signed via Docusign (or similar).Yes, you're correct that the specific format for electronic acceptance in Carta is not recognized by the ITA. Carta's format provides all the grant details and accompanying documents directly to option holders, which essentially make up the whole "package" that they sign and accept through the system. While there is still a formal signature entered and an electronic signature key (that can be authenticated within the system), since it doesn't populate on the agreement document itself, it unfortunately falls short of the ITA standard. The previously signed / executed documentation can however be attached to the options as the source agreements visible to the option holders on Carta, more information here. 
3. We must use a workaround for in Carta to issue a certificate to an employee who exercises his options:
   The stakeholder initiates the exercise and the options are exercised into a shares certificate;
   The company creates a new stakeholder entry in the name of the trust on behalf of the grantee;
   The company contacts Carta Support requesting that the certificate product of the exercise be reassigned to the      stakeholder entry created for the trust, which is a staff tool. That way, the option grant can remain on the stakeholder's name, but the certificate is held by the trust. It's probably worth clarifying the necessary method for this since it should be a simpler process for issuing exercised shares directly to employees in their existing Carta accounts. For option exercises under an Israeli Trustee plan, it's common for the holders to still receive the share certificate created from their exercise via their registered email login with Carta. The name on the issued shares just needs to be updated with the Trust name label (on behalf of the individual), which can be done by company admins. Then, once it's signed and issued, the share certificate from the exercise can still be received into the same portfolio as the exercised options (tied to the same holder email), but just under the name of the Trust instead.

Thank you Miro!

1. I also thought about designating the 102 & 3(i) grants to be INTL, but then I would lose the ability to filter properly. Also, if I can just change all my 102 & 3(i) grants to be INTL in order to utilize full exercise transaction through Carta, then what is the point of putting in a limitation into the feature? Why not just allow 102 & 3(i) grants to utilize full exercise transaction through Carta

2. Yes, we follow that exact process. But it is not ideal as we want to use Carta as our full source of truth, but the limitations are forcing us to use multiple systems & do a bunch of extra work.

3. I would love to learn a bit more about this when we do the next one. I am just following previous support instructions on how to do the workaround. If there is a better way, I am open to learning & changing.