What Is a Cap Table? A Founder’s Guide to Ownership, Equity, and Dilution

A cap table breaks down ownership among all company constituents, including founders, investors, staff with equity grants, employees, and others. It documents how many shares have been issued, how much of the company each person owns, and how ownership may be affected by different rounds of funding and grants. Every US entity that raises funds, issues shares, or adds a co-founder must create one, and it must be accurate from the very start.

Most founders build their cap tables for the first time the day an investor asks for it. By then, a lot of work is usually needed to get it in order. Cap tables built in Excel have been known to have three share counts that are inconsistent with the company’s stock ledger, spread across three separate tabs. This is not a hypothetical. It is a Tuesday.

If you are a non-resident founder incorporating a US LLC or C-Corp via EasyFiling, your cap table is created the first time you issue shares or membership units, not when you first raise a seed round. Getting the structure in place early prevents hours of cleanup later, which usually comes up in a complex situation, like diligence in process with a term sheet already submitted.

What Does a Cap Table Actually Track?

A cap table is a document that tracks equity distributions and shareholding information related to a company. This information helps potential investors evaluate their return on investment. Below is a rundown of the information to include in a basic cap table.

• Every shareholder or member (founders, investors, advisors, option holders)
• The type of security they hold (common stock, preferred stock, SAFEs, convertible notes, options, warrants)
• The number of shares or units issued
• The price paid per share, if any.
• Fully diluted ownership percentage, including unissued but authorized option pool shares

This last point is where many people get tripped up. Percentage of ownership is not as simple as dividing the total number of current shares by the total number of shares authorized by the company. It is dividing the total number of current shares by the total number of shares that will be outstanding in the future, including the total number of authorized shares plus the total number of options, warrants, and convertible instruments.

For example, a founder may hold 4 million of the 8 million issued and outstanding shares, suggesting a 50% ownership stake. However, if 1.5 million shares are reserved for an option pool and 2 million shares remain unissued for a SAFE conversion, the ownership stake would actually be in the range of 35%.

Why C-Corps Use Cap Tables Differently Than LLCs

This is extremely important information that is usually missed in formation guides. Most companies formed as Delaware C-Corps will maintain a cap table that includes shares with a par value of $0.0001 or $0.00001, as authorized in the company’s Certificate of Incorporation. The Delaware Franchise Tax is partially based on the number of authorized shares, which has led founders of C-Corps to authorize 10 million shares and later be subject to an unexpected franchise tax bill of over $2,000 when using the Authorized Shares Method instead of the Assumed Par Value Capital Method.

This is to say that preparing a cap table is a critical part of your company’s formation and can have significant financial implications.

An LLC cap table does not follow the same structure as other types of cap tables. Instead of referring to members as shareholders, the LLC Operating Agreement typically refers to them as unit holders and outlines their capital interests. If your LLC is taxed as a partnership (the default for multi-member LLCs) or an S-Corp, your LLC cap table must reflect individual capital accounts and profit/loss allocations, in addition to membership interests, to address potential discrepancies resulting from Section 704(b) allocations.

Most startups switch from an LLC to a Delaware C-Corp before raising institutional funding, since investors typically do not accept LLC membership interests. If you are hoping to raise funds from US-based venture capitalists, skipping the LLC conversion process can save you $3,000 to $8,000 in legal fees.

When Do You Actually Need a Cap Table?

The short answer is that you need it before you need it for a fundraiser, not after an investor requests it.

The cap table is created the moment the founder’s shares in the startup are issued, whether the table is built in Excel or not. So it’s best practice to create your cap table the same week you file your Certificate of Incorporation.

Before bringing on co-founders or early hires with equity, vesting terms should be added to the cap table with a 4-year term and a 1-year cliff, with the grant date documented, not 6 months after someone asks, “Wait, how much do I actually own?”

Before any SAFEs or convertible notes. SAFEs (Simple Agreements for Future Equity) do not translate to shares until conversion. However, they should be accounted for in the cap table prior to conversion using a “cap table waterfall” that captures fully diluted ownership across different valuation and conversion scenarios.

Before a priced equity round, investors in a Series Seed or Series A will model your cap table as part of their diligence. If your numbers do not align with theirs during the first meeting, that signals a credibility issue, not a math error.

Common Cap Table Mistakes Founders Make

These are the five mistakes we most frequently see among founders starting companies in Nigeria, India, the UK, and elsewhere when forming US entities.

Failing to account for the option pool shuffle. Investors often require founders to shuffle the option pool prior to their investment, which means that before new cash comes in, existing founders will have a diluted post-investment ownership percentage.

Treating verbal agreements as equity. An agreement to give your co-founder 30% should not be marked as equity on the cap table until it is recorded in board consent, stock purchase agreements, and reflected in the ledger. We’ve had founders bring their disputes to us because a deal was made unofficially, by handshake.

Failure to consider 83(b) elections. A founder who receives restricted stock subject to vesting must make an 83(b) election within 30 days of the stock grant, no exceptions, no extensions. Missing that deadline can significantly worsen vesting from a tax perspective. This has nothing to do with your company’s cap table software, but it’s the type of detail that gets overlooked because founders think the software “automates everything.”

Overlooking international tax withholding on equity. Issuance of equity in the US to nonresident founders and employees may trigger withholding tax obligations under IRC Section 1441 or similar provisions, depending on how the equity is granted. Any cap table software you use will not identify the issue; your accountant will, if you notify them it exists.

Using Excel past 10 shareholders. Excel is fine for two founders, but once you bring in board observers, investors, an option pool, and advisors, spreadsheet cap tables break down very quickly, usually due to version control (which version is the latest?) rather than actual mistakes.

Cap Table Software vs. Spreadsheets: What Actually Makes Sense

Platforms like Carta, Pulley, and EasyFiling‘s own cap table service handle 83(b) election tracking, vesting schedules, waterfall modeling, and investor-ready reporting in one place, which matters most when a diligence request comes in on a Thursday and closes the following Friday.

We built our cap table tool specifically because we kept seeing international founders hand-build these in Google Sheets and then scramble to fix them once a US investor asked for a clean version.

Step-by-Step: Setting Up Your Cap Table Correctly

Understanding your entity structure is paramount to creating a Delaware C-Corp cap table or an LLC ownership table. To avoid wasting time, you need to identify the structure before you start.

1. Write and finalize the founders’ names. Include in this document the first allocation of shares/units and all vesting terms (if any) agreed to before the creation of the corporation.
2. File an 83(b) election, in accordance with the applicable provisions, within 30 days of the grant date of any restricted stock units that vest.
3. Show the shares authorized and shares issued, or just authorized. For a Delaware C-Corp, this affects the franchise tax, and you need to get it right.
4. Reserve the option pool as authorized but unissued shares, with the normal range for early-stage companies being between 10% and 20% of the authorized pool.
5. Model the SAFE documents or convertible notes on a fully diluted, as-converted basis, not just as an afterthought or footnote.
6. Whenever there is a movement in equity (grants, exercises, terminations, repricings, etc.), update the table.
7. Prior to going to market with a funded round, prepare the table. Have your attorney or cap table platform reconcile the table against your signed agreements before investors view it.

FAQs on Cap Table

Ready for an Easy Cap Table Setup?

Building your cap table to coordinate your ownership structure, active vested positions and options, and standby pools, while maintaining accurate diluted investor numbers, is straightforward with EasyFiling’s cap table service. As you consider your first equity grant, reach out to us before your first fundraising meeting.