A cap table or capitalization table is a table that provides detailed information about the ownership structure of your company. A capitalization table lists all your company’s securities, such as stocks, options, equity, etc. It provides the details of who owns the shares, who has shares, how many shares they have, and the value of those shares.
For entrepreneurs, a cap table is a document sheet that establishes transparency, builds credence, and shows the diligence and organizational abilities of entrepreneurs. As a founder or business owner, maintaining an accurate and up-to-date capitalization table is essential for various reasons.
Importance of Cap Table for StartUp Founders
1. Incentive for potential investors
Firstly, A capitalization table can also help illustrate your startup’s overall health to investors when you get to the fundraising stage. Potential investors are always looking for details about company ownership structure and changes. Therefore, an updated cap table of your business will give investors insights into the overall health of your company’s potential growth. It also provides them with clarity about your company’s ownership structures.
2. Consensus on equity distribution among shareholders
Shareholders of a company must have a consensus on their equity distributions. A cap table provides the ownership structure, including how much equity is allocated to each founding team member. Putting this in writing will help to avoid conflicts about the company ownership structure and shares among shareholders. Investors will also be able to see the components of their investment and the total amount.
3. Access to details of investors
It helps founders to have access to the details of all the investors, which facilitates the operations and decision-making for future fundraising rounds.
4. Maintenance of tax and regulatory policies
An important function of your cap table is to help you maintain compliance with tax and regulatory policies. It helps to mitigate potential legal and regulatory risks against your company. Failing to remain compliant could result in penalties or fines.
How to create a Cap Table
There is no specific format to follow when creating your cap table. However, Easy, simple, and for easy accessibility, it is advisable to free Captable information that can be replicated with the use of an Excel spreadsheet or Google sheets. Some companies have developed Freemium capable solutions. These include Clara, Carta, Whether you develop your table from scratch or use software, it is important to keep it simple to prevent any mistakes in your record.
Details on a Cap Table
Every capitalization table will look different but the necessary details in a (good) cap table include the
- Name, address, and contact details of each shareholder
- Authorized shares/options
- The class and type of shares
- Details of any voting rights or rights to dividends
- Price per share
- Profit claim ownership and percentage ms etc
In conclusion, as an entrepreneur, it helps you to understand equity split which is critical as your company grows and develops. A cap table is a centralized archive and everyone’s source of truth when it comes to the equity structure of your company. Develop your cap table at the beginning of your startup and update it regularly.
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