{"id":411771,"date":"2022-06-24T12:00:32","date_gmt":"2022-06-24T11:00:32","guid":{"rendered":"https:\/\/seedlegals.com\/resources\/cap-table-what-it-is-and-why-you-need-one\/"},"modified":"2022-06-24T12:00:32","modified_gmt":"2022-06-24T13:00:32","slug":"cap-table-what-it-is-and-why-you-need-one","status":"publish","type":"post","link":"https:\/\/seedlegals.com\/us\/resources\/cap-table-what-it-is-and-why-you-need-one\/","title":{"rendered":"Cap Table: What it is and why you need one"},"content":{"rendered":"","protected":false},"excerpt":{"rendered":"

A capitalisation table shows who owns what in a company. We explain what a cap table is, why startups need one, and the best ways to create and maintain one.<\/p>\n","protected":false},"author":169,"featured_media":411975,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[141],"tags":[],"event_tags":[],"class_list":["post-411771","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized-us"],"acf":{"post_content":[{"acf_fc_layout":"text","text":"

As a founder, it\u2019s important to keep an accurate record of who owns shares in your company \u2013 and a cap table<\/a> provides just that. It acts as a source of truth for stock ownership, tracking changes over time.<\/p>\n

In this article, we\u2019ll explain what a cap table is, why you need one and how you can make one for your company.<\/p>\n

What is a cap table?<\/h2>\n

\u201cCap table\u201d is short for \u201ccapitalization table\u201d. It\u2019s a set of database entries that shows who owns the stock in a company. Historically, it was kept on paper or on a spreadsheet. But there are much better ways to maintain them now (we cover them in \u2018How do I set up a cap table?\u2019 below).<\/p>\n

A cap table will include the names of the stockholders, the amount and class of stock they hold, the price paid for that stock, and their percentage ownership.<\/p>\n

Why do you need a cap table?<\/h2>\n

Understand who owns the company<\/h3>\n

The main purpose of a cap table is to track the ownership structure of your company. This can change over time if certain events take place.<\/p>\n

For example, the cap table would need to be updated if new investors came in, or if your employees exercised their stock options.<\/p>\n

And that\u2019s why it\u2019s so useful \u2013 it\u2019s a living, breathing database that evolves to show the current ownership position in a company.<\/p>\n

Forecasting different scenarios<\/h3>\n

Your cap table can (and should) be used to see what your company\u2019s equity position would be in different scenarios.<\/p>\n

It can show you, for example, what each stockholder\u2019s ownership would look like if the entire employee option pool was issued and exercised.<\/p>\n

Or it can help you forecast how diluted existing investors would become if your company went through another fundraise.<\/p>\n

So, the cap table can be used as a tool to see how future events could affect equity in the company.<\/p>\n

To negotiate a funding round<\/h3>\n

When you\u2019re planning for a funding round, you\u2019ll need an up-to-date cap table. Potential investors will want to see a snapshot of the current stockholding in the company.<\/p>\n

The cap table can also help you decide what terms you\u2019d be happy to accept in a fundraise. For example, you may want to keep hold of the majority of the company\u2019s stock yourself after the round has completed. So, you can plug numbers into the cap table to see how much stock you can afford to sell while keeping yourself above the 50% threshold.<\/p>\n

This will give you a better understanding of your equity ownership and control in your company in the future.<\/p>\n"},{"acf_fc_layout":"content_highlight","highlight_type":"tip","background_colour":"blue","show_icon":true,"content":"If you\u2019re about to do a fundraise, have a look at our tips on negotiating your term sheet<\/a> with angel investors and VCs as a founder. ","link":null},{"acf_fc_layout":"text","text":"

Do I need a cap table?<\/h2>\n

If you\u2019re the only stockholder in your company, you don\u2019t need to spend time setting a formal cap table using any tool or spreadsheet right now unless you\u2019re planning to take on investment or give shares to others.<\/p>\n

But most startups would benefit from a formal cap table to show who owns equity in the company.<\/p>\n

Initially, you may only have a few stockholders \u2013 the founders, maybe friends and family. But, when others want to invest in your company (say, angel investors or VCs) it becomes more important to keep track of stock ownership.<\/p>\n

Potential investors will ask to see your cap table so they know who currently owns stock in your company, and what they\u2019ll get for their investment.<\/p>\n

What does a good cap table look like?<\/h2>\n

There\u2019s no universally-agreed format for capitalization tables, but the best ones are quick to set up, simple to manage and easy to read.<\/p>\n

Here\u2019s an example of a cap table:<\/p>\n"},{"acf_fc_layout":"image","image":{"ID":1223,"id":1223,"title":"Example cap table","filename":"5c092ebc8aad60df87106e20_Cap-Table.png","filesize":67064,"url":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table.png","link":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table.png","alt":"Example cap table","author":"2","description":"Example cap table","caption":"Example cap table","name":"0c6259e5df9a497c9f87471b60c70cd7","status":"inherit","uploaded_to":22998,"date":"2019-10-30 15:07:17","modified":"2023-11-14 11:39:26","menu_order":0,"mime_type":"image\/png","type":"image","subtype":"png","icon":"https:\/\/seedlegals.com\/wp-includes\/images\/media\/default.png","width":1214,"height":634,"sizes":{"thumbnail":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table-150x150.png","thumbnail-width":150,"thumbnail-height":150,"medium":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table-300x157.png","medium-width":300,"medium-height":157,"medium_large":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table-768x401.png","medium_large-width":768,"medium_large-height":401,"large":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table-1024x535.png","large-width":1024,"large-height":535,"_themosis_media":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table-100x100.png","_themosis_media-width":100,"_themosis_media-height":100,"1536x1536":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table.png","1536x1536-width":1214,"1536x1536-height":634,"2048x2048":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table.png","2048x2048-width":1214,"2048x2048-height":634,"themosis":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table-200x150.png","themosis-width":200,"themosis-height":150,"tog-small":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table-300x157.png","tog-small-width":300,"tog-small-height":157,"tog-medium":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table-600x313.png","tog-medium-width":600,"tog-medium-height":313,"tog-large":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table-1000x522.png","tog-large-width":1000,"tog-large-height":522,"tog-huge":"https:\/\/seedlegals.com\/wp-content\/uploads\/2019\/10\/5c092ebc8aad60df87106e20_Cap-Table.png","tog-huge-width":1214,"tog-huge-height":634}},"caption":"Example cap table on SeedLegals","width":"100","alignment":"left"},{"acf_fc_layout":"text","text":"

In this example, you can see the stockholders, their stockholding and investment amounts in the table, with the data represented in the charts above.<\/p>\n

This makes it easy for anyone viewing your cap table to find the information they need.<\/p>\n

In this example, you can see the stockholders, their stockholding and investment amounts in the table, with the data represented in the charts above.<\/p>\n

This makes it easy for anyone viewing your cap table to find the information they need.<\/p>\n

How do I set up a cap table?<\/h2>\n

Use a spreadsheet<\/strong>: The cheapest (but not the best) way to do it is by using a spreadsheet \u2013 you\u2019ll be able to find a bunch of cap table templates online. But, every time the stockholdings change, you\u2019ll need to manually update the table. And you need to keep it looking clear and neat, so it\u2019s ready anytime you need to show it to an investor.<\/p>\n

The issue is, if you have several people with access to the spreadsheet, you could end up in a mess with errors and out-of-date versions. To avoid this, some companies pay an accountant or lawyer to manage their cap table as a spreadsheet.<\/p>\n

Use a cap table management tool<\/strong>: The better alternative to spreadsheets is an online cap table management tool<\/a>. These solutions create your cap table for you in a neat, easy-to-read format, which you can share with investors. It also means there won\u2019t be different versions of your cap table floating around. But, with most tools, you\u2019ll still need to do the data entry manually, and every time you change the stockholdings, you\u2019ll need to update the cap table \u2013 it can be time-consuming.<\/p>\n

SeedLegals takes cap table management a step further. Unlike other tools, SeedLegals integrates your cap table with your legal documents, so when you make changes to stockholdings within the platform, the cap table updates automatically \u2013 no extra steps required. It’s a smarter, more efficient way to manage your cap table.<\/p>\n"},{"acf_fc_layout":"content_highlight","highlight_type":"tip","background_colour":"purple","show_icon":true,"content":"Every company needs a cap table \u2013 so we include cap table management in all SeedLegals plans. Plus, you can add unlimited stockholders, at no extra cost.","link":null},{"acf_fc_layout":"text","text":"

How often should a cap table be updated?<\/h2>\n

Your cap table will need to be updated whenever the stockholding of your company changes.<\/p>\n

The main events that would trigger a change in the cap table are:<\/p>\n