Equity · Basics
What a cap table is, and what breaks when it is wrong.
Who owns what, on what basis, and what each holder receives in a financing or an exit — with a worked example and the defects that stall diligence.
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In short
What is a cap table?
A cap table, or capitalization table, is the record of who owns a company: every holder, the security they hold, how many shares or units, and on what terms. It is the ledger a startup uses to work out ownership percentages, dilution in a financing, and payouts at an exit.
What a cap table is for
A cap table answers three recurring questions. Who owns what, right now. What happens to each holder when new money comes in. What each receives when the company is sold or wound up. Everything else is machinery for keeping those answers correct.
The third is the one people underestimate. Ownership percentage is not payout. Securities sit in a priority order that only becomes visible at the end. The SEC’s investor education material states the liquidation case plainly: if a company goes bankrupt and its assets are liquidated, common stockholders are last in line, with bondholders paid first and then holders of preferred stock. Venture preferred adds negotiated economics on top of that, which is why /equity/common-vs-preferred-stock is its own topic.
This guide assumes a Delaware C-corporation, the standard form for a venture-backed US startup. LLCs and non-US entities keep equivalent records, but the vocabulary and the governing law both differ.
What actually belongs on one
A useful row is not a name and a number. It should carry enough to reconstruct the position from scratch, and to point at the document that created it.
| Field | What it records | Underlying authority |
|---|---|---|
| Holder | The legal name on the executed instrument, not a nickname | Stock purchase agreement; grant notice |
| Security type | Common, a named preferred series, option, warrant, RSU, SAFE, or note | Certificate of incorporation; the equity plan for options |
| Certificate or grant ID | The reference tying this row to one signed document | Stock ledger entry; the authorizing consent |
| Quantity | Shares, or units where positions are uncertificated | The board consent authorizing the issuance |
| Issue or grant date | The date the board approved it, not the date it was typed in | Board consent or minutes |
| Price or exercise price | What the holder paid, or must pay to exercise | Purchase agreement; for options, the current 409A |
| Vesting schedule and cliff | When the position stops being forfeitable, and what termination does | Grant notice; restricted stock purchase agreement |
| Transfer restrictions | Rights of first refusal, co-sale, lock-ups, certificate legends | Certificate of incorporation, bylaws, stockholder agreements |
A worked example, and why the basis matters
An illustrative seed-stage company: two founders, a small option plan with some grants made, and a seed round of preferred. The figures are invented but internally consistent.
| Holder | Security | Shares | Fully diluted % |
|---|---|---|---|
| Founder A | Common | 4,500,000 | 45.0% |
| Founder B | Common | 3,000,000 | 30.0% |
| Employees (granted, unexercised) | Options | 700,000 | 7.0% |
| Unallocated option pool | Reserved | 800,000 | 8.0% |
| Seed investors | Series Seed Preferred | 1,000,000 | 10.0% |
| Total | — | 10,000,000 | 100.0% |
Issued and outstanding = 8,500,000 (4,500,000 + 3,000,000 common, plus 1,000,000 preferred). Granted options and the unallocated reserve are not outstanding shares until exercised.
Founder A holds 4,500,000 shares. That is 4,500,000 ÷ 8,500,000 = 52.9% of outstanding shares, and 4,500,000 ÷ 10,000,000 = 45.0% fully diluted. Same person, same certificate, two legitimate numbers about eight points apart. Neither is wrong. A percentage quoted without its basis is. /equity/authorized-vs-outstanding-shares works through the full set of denominators, including authorized shares — a third number again, and usually the largest.
Outstanding versus fully diluted
Both columns describe the same company at the same moment. Only the counting differs.
| Feature | Issued and outstanding | Fully diluted |
|---|---|---|
| What it counts | Shares actually issued and held | Outstanding plus everything reserved that could become a share |
| Total in the example | 8,500,000 | 10,000,000 |
| Founder A’s stake | 52.9% | 45.0% |
| Granted, unexercised options | Excluded | Included |
| Unallocated option pool | Excluded | Included |
| Where it gets usedVoting turns on outstanding shares; negotiation is a fully diluted conversation. | Stockholder votes, record ownership, quorum | Pricing a round, modelling an exit, employee offers |
Illustrative figures. Investors often quote a fully diluted number that also includes a post-round pool increase, moving the denominator again.
How a cap table changes over time
A cap table is not written once. It accumulates, one corporate action at a time, each with its own paperwork.
The events that move the numbers
Incorporation and founder stock
The certificate fixes the authorized count. DGCL §102(a)(4) requires it to state the total shares the corporation may issue, the number in each class, and the par value of each or that they are without par value. Founders then buy common, usually cheaply and subject to a repurchase right that lapses over time.
26 U.S.C. §83(b)(2) requires any election within 30 days of the transfer. Whether to make one is a tax question for a CPA.
The option pool
The board and stockholders adopt an equity incentive plan and reserve a block of common under it. Reserved shares are not outstanding. They hit the fully diluted view on reservation, then move from unallocated to granted as offers are signed. See /equity/option-pool.
SAFEs and convertible notes
Not stock, so not on the equity lines. They sit alongside the table with their caps, discounts, and principal, and become shares only on conversion. A table showing no SAFEs is not the same as a company that has none.
The most common source of surprise dilution. Model it before signing, not after.
A priced round
A new series of preferred is created. DGCL §151(a) lets a corporation issue one or more classes, or series within a class, with voting powers that may be full, limited, or none, and with the preferences stated in the certificate of incorporation. Creating the series therefore means amending the certificate under DGCL §242.
Secondaries, repurchases, departures
A holder sells to a third party. The company repurchases unvested stock when someone leaves. An exercise window opens, then closes. Shares the corporation holds in itself are treasury shares: under DGCL §160(c) they are neither entitled to vote nor counted for quorum while the corporation owns them.
Exercise windows are date-driven and easy to miss. A window that lapses unexercised usually returns the shares to the pool.
What breaks when it is wrong
Cap table errors are rarely dramatic on the day. They surface later, via someone’s lawyer, usually with a signature deadline in the way.
| Defect | How it happens | Why it is expensive |
|---|---|---|
| Grant dated before board approval | An offer letter promises equity on a start date; the consent is signed weeks later | The grant date drives the strike price and vesting start. Back-dating is a valuation and disclosure problem |
| Grants priced off a stale 409A | The valuation ages out, or a material event happens and nobody re-runs it | The strike may no longer be defensible as fair market value, with tax consequences for the holder |
| Missing 83(b) filing | The 30-day window in §83(b)(2) passes unnoticed after a restricted stock purchase | The window is statutory. Whether it mattered depends on the facts; a CPA works that out |
| Shares issued beyond the authorized count | The certificate authorizes fewer shares than everything issued and reserved | A defective corporate act. The cure is DGCL §204 ratification or §205 validation |
| Sheet no longer reconciles to the ledger | Two people maintain two versions; a round lands in only one | Nobody can say which is right without re-deriving the table from the documents |
| Percentages quoted on an unstated basis | An offer, a term sheet, and a board deck use different denominators | Everyone believes a different number until closing forces a reconciliation |
The diligence moment
The cap table stops being an internal artefact the moment a lead investor or acquirer instructs counsel. What they ask for is not the summary — it is the trail underneath: the certificate and every amendment, the stock ledger, consents authorizing each issuance, executed purchase agreements and grant notices, the equity plan, the 409A reports behind each strike price, evidence of 83(b) filings, every SAFE and note, and waivers for any rights of first refusal triggered.
Counsel then reconciles that trail against the table you sent. Deals slow at exactly this step, and rarely because of a hard legal problem. It is that the records were assembled after the fact rather than maintained as each action happened. /equity/cap-table-management covers the process that avoids that; /equity/dilution covers what the numbers do when a round lands on top.
None of this is legal or tax advice. Cap table questions are genuinely fact-specific — the answer turns on entity type, state of incorporation, the plan documents, and each holder’s circumstances. A securities lawyer and a CPA should confirm anything affecting a real position.
Frequently asked questions
What is the difference between a cap table and a stock ledger?
Is a spreadsheet good enough for a cap table?
What does fully diluted mean on a cap table?
Do SAFEs show up on a cap table?
Who should have access to the cap table?
How often should a cap table be updated?
Sources
External links open in a new tab.
- DGCL §102 — certificate of incorporation — Delaware Code Online
- DGCL §§151–174 — stock — Delaware Code Online
- DGCL §§201–205 — transfer restrictions and ratification — Delaware Code Online
- DGCL §242 — amendment of the certificate — Delaware Code Online
- 26 U.S.C. §83 — property transferred for services — Cornell Legal Information Institute
- Stocks — SEC Office of Investor Education
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What a cap table is, and what breaks when it is wrong.
Who owns what, on what basis, and what each holder receives in a financing or an exit — with a worked example and the defects that stall diligence.
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