What is the Difference Between a Cap Table and a Members’ Register?

As a startup, you will have a number of important documents and other files in your records. The law requires that companies have some of these documents, while other documents are used for various transactions or other commercial reasons. Two important documents that you will interact with are the startup’s capitalisation table (cap table) and the members’ register. Although many founders believe these are the same, they are different and serve different purposes. This article will explain why a startup cap table and members’ register are important to your startup and how you should be using them.

What Is a Cap Table?

A cap table shows your company’s share structure, including options and other securities which may convert into shares in the company. The startup cap table sets out each shareholder’s percentage ownership in the company. It often shows the percentage ownership both before and after the conversion of any convertible securities such as options. It also shows the number and class of shares each shareholder owns. Usually, a cap table is prepared in an excel spreadsheet or a similar program. This allows you to easily update it as you issue new shares, convert securities and transfer shares.

Importantly, the law does not require you to have a cap table. However, startups commonly use it, and potential investors will almost always ask to see it. A cap table can assist investors to easily understand what the company’s current share structure looks like, and what it will look like following the capital raise. In particular, they will be looking at their percentage shareholding following the capital raise.

What Should a Cap Table Include?

As there are no legal requirements, different startups may include different information in their cap tables. However, there are market standard details that you would expect to see in a cap table.

The cap table will usually show your company’s current share structure. It will usually also include, among others, the following details:

• pre-money valuation (the value of your startup before the investment round);
• post-money valuation (the value of your startup after the investment round) after taking into consideration your startup’s Employee Stock Option Plan (ESOP) (if relevant);
• total investment amount; and
• investment price per share.

A cap table allows the startup to project investment and understand the impact of a potential investment on its share structure using several different forecasts.

What Is a Members’ Register?

Similar to a cap table, your startup’s members’ register also shows the details of your startup’s shareholders and the shares they own. However, unlike a cap table, a members’ register will only include information about your company’s actual shares (and not any convertible securities).

The law requires your company to have a members’ register. You must also keep the register up-to-date.

The law requires that the members’ register must contain specific information for each shareholder. For example, the members’ register must show:

• each shareholder’s name and address;
• the number and class of shares they own; and
• the date when they became a shareholder in the company.

When you close an investment round, you must update the members’ register to reflect the issuance of new shares to each investor. Similarly, when a share transfer occurs in your company, you will need to add the details of the share transfer and the details of the new transferee to the members’ register.

Other information that the members’ register must show and update to keep current include:

• the date on which every allotment of shares takes place. This is when a company earmarks new shares to predetermined shareholders;
• the number of shares in each allotment;
• the number of shares held by each member;
• the class of shares held by each member;
• the share numbers or share certificate numbers (if any) of the shares;
• the amount paid on the shares;
• whether the shares are fully paid;
• the amount unpaid on the shares (if any); and
• whether the shares are held beneficially (e.g. for the sole benefit of the shareholder) or non-beneficially (e.g. on trust for others).

The information contained in a members’ register is similar to the information which must be notified to ASIC when a transaction occurs.

Key Takeaways

While there are many similarities between a startup’s cap table and members’ register, they are quite different. One of the key differences is that a members’ register is required and regulated by law, while a cap table is not legally required. Both a cap table and members’ register will show your startup’s share structure. A cap table assists with future forecasting and modelling. Contrast this to a members’ register which contains information about your company’s current shareholders and their shareholdings. Your startup will need to keep a members’ register up to date. A startup’s cap table and members’ register gives your startup and its investors a comprehensive understanding of the company’s capital structure. If you have any questions about your startup’s cap table or members’ register, get in touch with LegalVision’s capital raising lawyers on 1300 544 755 or fill out the form on this page.