Reading time: 4 minutes

It is common for fast growing startups to offer their employees with options through an employee share option plan (ESOP). ESOPs can be complex to understand, especially for employees who have not received options in a company before.

Understanding what a cap table is and how shares or options work in an ESOP can go a long way in understanding how you are being compensated. This article sets out the definition of a cap table and its role in startups.

What is a Cap Table?

A cap table (also referred to as a capitalisation table or capital table) sets out the ownership of all the company’s shareholders. Shareholders include founders, employees who hold options in the company and any investors. In addition to listing the names of shareholders, a cap table will also list out the portion of ownership and any distributed securities. In short, it lists who owns what securities in a startup.

You can download LegalVision’s free cap table template to manage all your equity.

To understand how much of a company a person owns, they will need to have the fully diluted share count (compared to the basic share count). The fully diluted share count is the complete sum of not only all existing shares but also the value of any other securities such as options, warrants and unissued options that may eventually be converted into shares (exercised). It is common for investors to see their ownership of the company expressed regarding fully diluted shares. This calculation assists them with conservatively determining the true value of their shares.

There are a number of benefits of having a cap table that is frequently updated and can model forecasts. A cap table can assist with new hiring and option pool decisions, modelling new rounds of capital and accurately tracking ownership. An effective cap table must be able to keep track of every single transaction between your shareholders and the company.

Excel Spreadsheets and Cap Tables

There’s no one way to create a cap table. However, an Excel spreadsheet is often a good starting point but as a company grows, a basic spreadsheet may not be enough. It can become very complicated very quickly, as you offer more options to new employees or take onboard more investors. Using a conventional format and common terms makes it easy for others to understand.

Essentially, effective cap table management comes down to accurately recording all transactions that affect the valuation of a company such as option issuances, sales transfers, conversions of debt to equity and any exercises of options. Whether you use a cap table template or start one from scratch, this will depend on what you wish to achieve from it. For example, some templates may allow you to model out a new capital raising round, but not offer any tools to analyse exit scenarios.

Whichever way you build your cap table, the information must be presented in a manner that can easily be understood, especially to your investors. Most importantly, cap tables must be current at all times and easily accessible to those who require access to it. Beyond a simple recording of who owns what, more complex cap tables will also model out various hypothetical situations such as scenarios of M&A activity or public offerings. They can also provide granular detail on the holdings of each owner and the type of security.

***

It is critical that startup founders understand their cap table. If you have any questions about cap tables, capital raising or startup law documentation, get in touch with our team of startup lawyers. Call us on 1300 544 755 or fill out the form on this page.

Don’t forget to download LegalVision’s free cap table template.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Anthony Lieu
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards