The Cap Table is one of those rare gems in the world of finance. In fact, it is so rare that only the very elite and most prestigious investment banks actually trade this note. A cap table is one of those contract notes that are convertible into cash, upon the death of the primary holder. startups , upon his or her death, the buyer of the cap note can receive a lump sum of money. However, there are a few wrinkles in this particular note. Let me explain.

First, the buyer is actually required to pay taxes on the purchase of the note. If the person writing the note lives in Canada, for example, the buyer will also be required to pay tax on the cash he or she receives from the sale of the note. The reason why this note is referred to as "capable of conversion" is because upon the death of the buyer the note becomes an exercisable debt of the buyer. The reason why the buyer must pay taxes on the purchase of the note is that this is a tax-deductible transaction. The purchaser did not contribute anything to the purchase, hence the need to obtain tax relief from the government.

The Cap Table is also referred to as a reverse cap. Basically, what happens is that upon the death of the primary holder of the note (who is usually the Bank of America or another large financial institution), his or her estate (the cap holder) transfers the note to another person. The person who receives the note then becomes the new holder of the note. The difference in the value of the note and the value of the estate's net worth is called the difference between the two. There is also a provision within the Note to provide for an option which allows the holder of the note to convert the note into cash. In some situations this option may be triggered if the cash value of the estate is more than the cash on hand currently.

Upon death, the holder of the Note is able to sell the note for one to two times its current market value, depending on the life expectancy of the buyer. In addition to the cash payment option, there are other options available to the holder. If the seller of the note has an immediate need for funds, he can exercise his option to sell the note immediately. Alternatively, if there are startups to fund the seller's needs, he can leave the note in effect and allow it to generate an income. This will happen, assuming that the buyer is able to find a willing buyer for the note.

One thing to watch out for is people selling their notes who fail to disclose important facts. For instance, if a note is owned by multiple beneficiaries, only one of whom is interested in converting the note into cash, don't ever buy the note for less than the face value. You can even check with the beneficiaries to ensure that they don't sell the note for more than the deceased benefactor was willing to pay for it. If they don't have to make a larger payment to get rid of the note, you're safe in the knowledge that they cannot be tricked into doing so under any circumstances. Another thing to bear in mind is that the note is usually convertible into cash within a year of the purchase, so anyone selling should know when it will be convenient for them to do so.

The process of converting a note into cash is simple. However, you do need to have a good understanding of contract law and the technicalities involved in convertible note transactions. Be wary of any company that tells you that they can process your cap table note for you immediately. While this is often possible, it will come at a price. Most reputable companies will take a couple of months to complete the conversion. For an investor with several beneficiaries who want to convert their notes, waiting that long makes little sense.

Most people who buy notes are motivated by one thing: cash. Most investors, however, don't care about the underlying asset value, only the potential cash they can make from selling. For this reason, buyers are advised to seek out companies that have experience dealing with these types of transactions. startups should always ask to see a copy of the seller's financial statements before making a commitment to buying the note.

Many investors buy notes simply because they think the seller has a cap on the note. They assume that if the cap is $200K, then it won't be hard to find buyers. This is simply not true. There are many cap-clusioned notes out there, and while the numbers may differ slightly from year to year, they still apply to most note owners. It's important for buyers to ask the seller whether the cap on the note is real or imaginary.