Cap Table Explainer
A capitalization table, usually called a cap table, is a record of who owns a company and what kinds of securities create that ownership. For a young company it may begin as a short list of founders and their shares. As the company issues stock, grants options, raises financing, or uses convertible instruments, the table becomes a central map of the ownership structure. It often shows each holder, the security class, the number of shares or units, and the corresponding percentage.
Percentages depend on the denominator. A basic view may count shares that have already been issued and are outstanding. A fully diluted view usually adds securities that could become common shares, such as options, warrants, and certain convertible instruments, according to stated assumptions. If a founder owns 600,000 of 1,000,000 outstanding shares, the basic stake is 60 percent. If an additional 200,000 options and convertible shares are included, the fully diluted stake becomes 50 percent.
Cap-table modeling helps a company understand how a proposed financing could change control and economic participation. New shares usually dilute existing percentages even when the company’s total value may increase. The table can also show option-pool capacity, different voting or liquidation rights, and the order in which securities convert. Founders and investors commonly review both the current structure and a pro forma version showing what the structure would look like immediately after a transaction.
A cap table is only useful when it agrees with the company’s legal records. Informal spreadsheets can miss canceled options, transfers, vesting terms, stock splits, or different rights attached to preferred shares. Percent ownership also does not by itself describe voting power or sale proceeds. Companies should update the table after every issuance, transfer, exercise, cancellation, or financing and have legal and tax advisers review material transactions. It is a living record, not a substitute for the underlying agreements.
A basic view counts securities already issued and outstanding.
A fully diluted view adds securities that could convert or be exercised, using clearly stated assumptions.
Issuing new shares increases the ownership denominator and usually reduces existing percentage stakes.
Model the post-money structure before closing so founders, employees, and investors can see the expected change.
Two holders with equal percentages may have different voting, liquidation, conversion, or protective rights.
Read the cap table together with charters, grant documents, and financing agreements.
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