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A cap table, or capitalisation table, is a detailed record of share ownership and other investments in a limited company. It shows important information about who the shareholders are, how much of the company they each own, and the dilution of shares over time.
In this post, we look at the cap table in detail, including the information it should include, why a company would need one, and how to create and maintain a cap table for your limited by shares company.
What is a cap table?
A capitalisation table, commonly referred to as a ‘cap table’, is a spreadsheet or data table that provides a comprehensive breakdown of a company’s ownership. This includes who the shareholders are, their percentage of ownership, the class (type) and quantity of shares they own, how much they’ve invested, and the value of their shareholdings.
In addition to allocated shares, cap tables should also record details of other forms of investment or ownership, such as share options, stock warrants, vesting schedules, SAFE notes and convertible notes, and advanced subscription agreements.
All of this information is used to keep track of investments and ownership over time, enabling the company to make informed decisions about future fundraising and share distribution. It also shows the effect of share transfers and new share issues on existing shareholders, e.g. equity dilution and the extent of their individual control.
Generally, cap tables are created before or immediately after company formation. They are typically used by startups, venture capitalists, and investment analysts to demonstrate the actual or potential impact of fundraising and exercising share options.
However, every limited by shares company with more than one shareholder should have a cap table. This information provides investors with a clear picture of how much of the business they own and control, and what they can expect to receive in return for their investment.
What does ‘capitalisation’ mean?
Capitalisation has many different meanings. However, in the context of a cap table and company shares, it refers to funding within the business.
The cap table is a detailed breakdown of this funding – who has put capital (cash) into the business, how much they have contributed, the shares they own, and any future share options the company may choose to exercise.
What information is included in a capitalisation table?
Ideally, your cap table should include as much information as possible about the company’s equity structure, including:
- Name of every shareholder (member)
- Quantity and class(es) of shares held by each member
- The date on which shares were issued
- The price paid per share
- Equity stake (i.e. percentage of company ownership) and voting percentage represented by each member’s shareholdings
- Option pool, setting out the number of share options the company has ring-fenced for future use, e.g. employee share option schemes or shares reserved for new investors
- Effects of share dilution over time, including the fully diluted ownership of each existing shareholder if the company exercises all options
- Total number of shares in issue
- Capital entitlement of each shareholder upon winding up or selling the company
If a company has multiple shareholders, the cap table will usually list them in groups (e.g. founding members, investors, employees) on the left-hand side of the table, with details of their ownership on the right.
Generally, cap tables will also include relevant legal documents like share allotments, stock transfer forms, stock warrants, etc.
How to create a cap table
There is no standard format or template used for cap tables. You can find a variety of different templates online, but the best cap tables are simple to create, clearly organised, and easy to read.
Many companies choose to create their own cap tables using spreadsheet software, or they ask their accountant or solicitor to set up and maintain one for them. Cap tables can become increasingly complex as companies grow, so it’s often wise to get professional help early on.
Alternatively, you can use online equity management software like Shareworks, Capdesk, or Seedslegal. These automated tools make it much easier to organise and update shareholdings, provide clear summaries, model future changes, and analyse investments in a professional, efficient manner.
Whichever method you choose, avoid creating a cap table on paper – or worse, in your head. These options are fine if you’re a sole shareholder or simply mulling over ideas for your new business, but they are not suitable under any other circumstances.
Why would a company need a capitalisation table?
Companies are under no legal obligation to create and maintain cap tables. Nevertheless, it is good practice, and essential if your company has multiple shareholders and stakeholders because:
- It will help you to keep track of key investors and all current and future shareholdings, from the time of company formation
- Founding members can quickly and easily determine their percentage of ownership, and how much equity stake the company can offer to new investors during funding rounds
- Current investors can use the information in the cap table to forecast their position in the company
- It is a useful tool for testing the potential impact of future fundraising scenarios and employee share schemes, e.g. the dilution of existing shareholdings and organisational control
- When seeking investment, the cap table will be used to calculate your company’s valuation and demonstrate your ambitious strategy and potential for growth
- It enables potential investors to determine the degree of ownership, control, and profit entitlement they will get in return for their equity funding
- The company can accurately present its shareholdings and history if it is subject to an audit
Your cap table tells an important story about your company and the people who run it, providing historical insight into the way in which equity and investments are managed.
Aside from helping you to keep track of investments and make smart decisions about future fundraising and growth, potential investors will scrutinise the cap table to understand the resourcefulness and judgment of your company’s directors and majority shareholders.
Investors will want to be sure that founding shareholders own and control enough of the business, whilst also maintaining a healthy option pool for future employees and fundraising.
This provides reassurance that their involvement aligns with the interests of the company’s founders. Whereas, significant dilution of the original members’ shares can be a red flag, signalling poor decision making or a business that is struggling financially.
Be wary of ‘dead equity’
Dead equity is a term used for shareholders who add no value to a company other than their initial investment.
For example, a co-founder who owns 25% of the company’s shares but is no longer involved in the business in any other way, or a relative who contributed capital at the beginning to help get the business off the ground.
Having too much dead equity can be another red flag to prospective investors, so it’s best to keep this type of shareholder to a minimum. Focus on having the right shareholders, rather than too many.
Difference between a cap table and the register of shareholders
The information that you keep in your company’s statutory register of shareholders (or ‘register of members’) is similar to the information you will keep in a cap table. They both show who the shareholders are and how much of the company they own. However, there are some key differences.
In the UK, maintaining a register of members is a legal requirement for companies. The information on this register is a matter of public record. It must be kept at the registered office address, made available for inspection on request, and disclosed on the central public register at Companies House
On the other hand, keeping a cap table is optional and the information is private. You will only share it with the company’s existing shareholders and any potential investors or stakeholders.
The cap table also records additional information about members’ capital investments, future share ownership options, and forecasts and modelling on exercising these options. It provides far more detail than the register of members.
Keeping your cap table up to date
You must update your cap table when there is any change to the company’s shareholders or shares. This includes:
- the names of shareholders
- transferring shares from one person to another
- issuing new shares (e.g. at a funding round)
- splitting shares
- exercising share options
As your company grows, you will likely bring in new investors and/or provide share options to employees. Every such change will dilute each current shareholder’s percentage of ownership, so it’s crucial that the cap table is kept up to date to reflect the current position and demonstrate good management.
Do I need to provide a cap table for Companies House?
Your cap table is private, so there is no need to share it with Companies House. You will provide all of the information that Companies House requires in other records and filings, including the statement of capital, register of members, and confirmation statement.
However, you should provide access to the cap table to all directors, investors, stakeholders, and professional advisors (e.g. your accountant, financial advisor, solicitor, and auditor).
When any changes are made to the cap table, you should alert all affected parties and make the updated table available. If you use a cloud-based cap table, you can simply share a link with everyone who needs to see it.
Creating a cap table is vitally important for any company with more than one shareholder. It will help you to understand and keep track of investments and make smart fundraising decisions for the future.
A healthy cap table illustrates good management, ambitious strategy, and potential for growth – all key points that potential investors will look for when deciding whether or not to support your business.
Cap tables are usually easy to manage at the beginning, but they can become increasingly complex as a company grows, brings in new investors, and exercises share options. Therefore, it is advisable to use online equity management software or seek professional assistance from an accountant or financial advisor.
If you have any questions about this post, or require further information on setting up a limited company, please leave a comment below or contact our company formation team.